Balancing new government purchases with an equivalent increase in taxes will avoid stimulus to the economy.

Question

Quizplus · Accepted Answer

This statement is based on the concept that when the government increases spending and raises taxes by the same amount, the net effect can still be stimulative to the economy. This is because the multiplier effect of government spending (the additional economic activity generated from an initial spending) is typically larger than the multiplier effect of a tax increase. Government spending directly injects money into the economy, leading to increased demand for goods and services, which can stimulate economic activity. On the other hand, while tax increases can dampen consumer spending, the negative impact is often less immediate or direct than the positive impact of government spending.

Balancing New Government Purchases with an Equivalent Increase in Taxes