A decrease in transfer payments has the same basic effect on aggregate demand as larger the marginal propensity to save.
Aggregate demand refers to the total amount of the money spent on the purchase of the commodity for the particular period of time. It includes the demand of the consumer goods, imports, and government spending.
When the change in the transfer payments, it affects the consumption level of the individual, which results in the shift in the aggregate demand of the product.
Therefore, it can be concluded that A reduction in transfer payments has the same basic effect on aggregate demand as an increase in the marginal propensity to save.
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