Answer to Question #254620 in Macroeconomics for BL4 TUT 9

Question

Which of the following would result in the largest increase in aggregate demand?

A R30 billion increase in military expenditure and a R30 billion open market sale of government securities.

A R30 billion tax increase and a R30 billion open market purchase of government securities.

A R30 billion tax decrease and a R30 billion open market sale of government securities.

A R30 billion increase in military expenditure and a R30 billion open market purchase of government securities.

Answer 1

Alternative D (A R30 billion increase in military expenditure and a R30 billion open market purchase of government securities) shows both of expansionary fiscal policy as well as expansionary monetary policy, that will help maximum increase in AD.