If taxes and government spending increase by the same amount, GDP will stay constant.

Question

Quizplus · Accepted Answer

If taxes and government spending increase by the same amount, it will depend on how individuals and businesses respond. If they reduce their spending due to higher taxes, it could lead to a decrease in GDP. Similarly, if the government spends on projects that increase productivity and stimulate the economy, it could lead to an increase in GDP. Therefore, it is not guaranteed that GDP will stay constant.

If Taxes and Government Spending Increase by the Same Amount