Anne and Charlie Are Discussing the Best Possible Fiscal Policy

Multiple Choice

Anne and Charlie are discussing the best possible fiscal policy to bring the country out of a recession. Charlie wants to see government reduce taxes by $100 billion. Anne prefers to see government spending increase by $100 billion. Whose proposition would have the larger total impact on aggregate demand?

A) Anne's, because the government has more information available to it than do households and firms
B) Anne's, because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved and not spent
C) Charlie's, because households and firms have a higher marginal propensity to consume than the government
D) Charlie's, because firms and households are better spenders than the government, whose spending decisions are bogged down in political debating