A government increases its transfer payments to households by $50 billion in the form of unemployment benefits. The households who receive these payments spend $40 billion on new goods and services and save the remaining $10 billion. What is the direct, initial impact of this action on the components of aggregate demand?

When a government increases its outlays by paying more in unemployment benefits, this action is recorded as a direct increase in the government purchases (G) component of aggregate demand.

Analyzing Fiscal Stimulus Options

Distinguishing Government Purchases from Transfer Payments

Rationale for Classifying Transfer Payments