Decreases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

Decreases in government spending will decrease aggregate demand, causing a decrease in equilibrium income. Increases in taxes will decrease disposable income and consumer spending, also leading to a decrease in equilibrium income.

Decreases in Government Spending _____ Equilibrium Income, and Increases in Taxes