President George W.Bush and congress cut taxes and raised government expenditures in 2003.According to the aggregate supply and aggregate demand model
A)both the tax cut and the increase in government expenditures would tend to increase output.
B)only the tax cut would tend to increase output.
C)only the increase in government expenditures would tend to increase output.
D)neither the tax cut nor the increase in government expenditures would tend to increase output.

Question

Quizplus · Accepted Answer

According to the aggregate supply and aggregate demand model, both the tax cut and the increase in government expenditures would increase demand in the economy, which would lead to an increase in output. The tax cut would increase disposable income and therefore increase consumption, while the increase in government expenditures would increase overall spending in the economy. Both of these factors would shift the aggregate demand curve to the right, leading to an increase in output.