The government is attempting to reduce the fiscal deficit. Private market orientated advisors tell them to cut government spending, whereas, the more civic-minded advisors argue that it is better to increase taxes in an equitable way than to engage in harsh spending cuts. Which policy option - a tax rate increase that will increase tax revenue at the current level of national income by $x or a spending cut of $x - will have the greater initial impact on aggregate demand?
Answer: Spending cut