In a Keynesian model, why would a $100 million increase in government expenditure on goods and services have a greater impact on aggregate demand than a $100 million reduction in tax revenue?
A Consumers spend only part of any extra disposable income.
B Government expenditure does not create wealth.
C The marginal tax rate affects the value of the multiplier.
D The multiplier does not apply to consumer expenditure.

Q: What topic does this question test?

This question tests Fiscal Policy in A-Level Economics (syllabus code 9708). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge A-Level Economics May/June 2018 examination, Paper 3 Variant 1 (9708_s18_qp_31.pdf).

Question

In a Keynesian model, why would a $100 million increase in government expenditure on goods and services have a greater impact on aggregate demand than a $100 million reduction in tax revenue?
A Consumers spend only part of any extra disposable income.
B Government expenditure does not create wealth.
C The marginal tax rate affects the value of the multiplier.
D The multiplier does not apply to consumer expenditure.

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