Evaluating Fiscal Policy Options for Shifting Aggregate Demand
A government is considering two different fiscal policy options to stimulate a sluggish economy, each with a total cost of $100 billion.
- Option A: A $100 billion increase in government spending on new public transportation projects.
- Option B: A $100 billion tax cut distributed to households.
Assuming no other changes in the economy, which of these two options will cause a larger initial upward shift in the aggregate demand curve? Justify your answer by explaining how each option affects the components of aggregate demand.
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Introduction to Macroeconomics Course
Ch.3 Aggregate demand and the multiplier model - The Economy 2.0 Macroeconomics @ CORE Econ
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