According to Rittenberg and Tregarthen (2009), "the government sector plays a major role in the economy. The spending, tax, and transfer policies of local, state, and federal agencies affect aggregate demand and aggregate supply and thus affect the level of real GDP and the price level. An expansionary policy tends to increase real GDP. Such a policy could be used to close a recessionary gap. A contractionary fiscal policy tends to reduce real GDP. A contractionary policy could be used to close an inflationary gap" (p. 686).

Based on the above, please describe the effect that changes in business taxes, personal income, and transfer payments have on a country's gross domestic product (GDP).

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Reference

Rittenberg, L. & Tregarthen, T. (2009).Principles of Economics.