Answer to Question #255357 in Macroeconomics for Prisca Mahlalela

Question

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

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

government securities.

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

securities.

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

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

Answer 1

Correct Answer:

C

B.

Alternative B shows both of expansionary fiscal policy as well as expansionary monetary policy, that will help maximum increase in AD.