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Effects of tax rebates and government spending

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Which of the following changes to fiscal policy would have a larger overall impact on Aggregate Demand? Explain your answer in a paragraph or 2.

-A program of tax rebates, distributed uniformly across the population of those filing tax returns, amounting to $10 billion in total rebates.
-OR-
-A $10 billion increase in federal government spending on repairs to highways and bridges.

© BrainMass Inc. brainmass.com October 16, 2018, 2:28 pm ad1c9bdddf - https://brainmass.com/economics/aggregate-demand-and-supply/effects-of-tax-rebates-and-government-spending-86604

Solution Preview

Hi,

Aggregate demand is the demand for goods and services. So, let's think about what would happen in the case of a tax return. Actually, this actually occurred a few years ago, as an attempt to jumpstart the economy. (It turned out that it wasn't exactly a rebate, but most people didn't know that. Look here: http://boren.nu/archives/2001/07/26/surprise-tax-rebate-not-a-rebate/)
When the money was received, it wasn't really that much. Certainly, some people probably rushed out and spent it. But based on my ...

Solution Summary

Effects of tax rebates and government spending on supply and demand.

$2.19