Suppose the government decides to increase taxes by $20 billion in order to increase social security benefits by the same amount. If prices remain at current levels, this combined tax-transfer policy will:

A) Leave aggregate demand unchanged.
B) Increase aggregate demand by $20 billion.
C) Increase aggregate demand by more than $20 billion after all multiplying effects.
D) Decrease aggregate demand by $20 billion.

ANSWER:

A