How does an increase in government transfer payments affect aggregate demand?

A. It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease.
B. It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending.
C. It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut.
D. It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease.


Answer: B

Economics

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