Everything else equal, which will have a bigger effect on aggregate demand and GDP: a $100 million reduction in taxes, or a $100 million increase in government spending?
A. The increase in government spending, which must go through consumption to affect GDP, will have a bigger effect than the decrease in taxes, which affects GDP and income directly.
B. The increase in government spending, which has shorter lags, will have a bigger effect than the decrease in taxes, which must go through government lags.
C. The decrease in taxes, which affects GDP and income directly, will have a bigger effect than the increase in government spending, which must go through consumption to affect GDP.
D. The increase in government spending, which affects GDP and income directly, will have a bigger effect than the decrease in taxes, which must go through consumption to affect GDP.
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