Other things equal, an increase in government purchases combined with an equal increase in taxes would:

Question

Quizplus · Accepted Answer

An increase in government purchases directly increases aggregate demand (AD) because the government is increasing its spending. An equal increase in taxes does not fully offset this increase in AD because the marginal propensity to consume (MPC) is less than 1, meaning not all of the taxed money would have been spent by consumers. Therefore, the net effect is an increase in AD.

Other Things Equal, an Increase in Government Purchases Combined with an Equal