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Question 1: Why would the government's spending more and taxing less increases aggregate demand?
Group of answer choices
Option 1: Both types of policies imply decreases in investment spending, which causes an increase in AD.
Option 2: Increases in government spending directly decrease aggregate expenditure, but decreases in taxes increase disposable income, increasing consumption spending, offsetting the decrease in AD from increased government spending.
Option 3: Both types of policies increase disposable income, increasing consumption spending.
Option 4: Increases in government spending directly increase aggregate expenditure and decreases in taxes increase disposable income, increasing consumption spending.
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