Which of the following fiscal policy changes would have a larger overall negativ

Question

Which of the following fiscal policy changes would have a larger overall negative impact on AD and RGDP? Explain your answer in a paragraph or two with credible logics and analysis. Hint: Read my lecture notes on multiplier effects and also Ch. 9 in the textbook of Baumol and Blinder.

A) A program of tax hike, distributed uniformly across the households earning over $300K annually filing tax returns, amounting to $85 billion in total tax hikes.          

Alternatively, B) An $85 billion sequester (called automatic federal government spending cut) that went into effect on March 1, 2013. This was an across-the-board spending cut in federal government

Explanation / Answer

Which of the following fiscal policy changes would have a larger overall negative impact on AD and RGDP? Explain your answer in a paragraph or two with credible logics and analysis.

A) A program of tax hike, distributed uniformly across the households earning over $300K annually filing tax returns, amounting to $85 billion in total tax hikes.

Alternatively,

B) An $85 billion sequester (called automatic federal government spending cut) that went into effect on March 1, 2013. This was an across-the-board spending cut in federal government

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