Which of the following best explains why an increase in income transfers of $25

Question

Which of the following best explains why an increase in income transfers of $25 billion has a smaller impact on aggregate demand than an increase in government purchases of $25 billion?

A. An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does.

B. An increase in income transfers must be paid for with a tax increase while an increase in government purchases can be paid for by borrowing.

C. An increase in government purchases must be paid for with a tax increase while an income transfer can be paid for by borrowing.

D. Families save part of an increase in income while the entire increase in government purchases represents additional spending.


Please help me with some explanation for the answer

Explanation / Answer

A. An increase in transfer payments does not create a multiplier effect, but an increase in government purchases does. it describes the situation

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