Everything else held constant,a balanced budget increase in government spending (that is,an increase in government spending that is matched by an identical increase in net taxes)will
A)increase aggregate demand,but not by as much as if just government spending increases.
B)increase aggregate demand by more than if just government spending increases.
C)not affect aggregate demand.
D)decrease aggregate demand.

Question

Quizplus · Accepted Answer

An increase in government spending matched by an identical increase in taxes will increase aggregate demand due to the government spending multiplier effect. However, the increase in taxes will partially offset this effect because it reduces disposable income and consumption, making the net increase in aggregate demand smaller than it would be with just an increase in government spending.

Everything Else Held Constant,a Balanced Budget Increase in Government Spending