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If the Government Raises Taxes by $25 Million in Order

Question 12

Multiple Choice

If the Government raises taxes by $25 million in order to finance an increase in the road building program of $25 million, the effect on aggregate demand will be that:


A) it will fall since the population resent increased taxes more than they appreciate increased government expenditure
B) it will rise since the multiplier effect from increased government expenditure is greater than the multiplied reduction in income from increased taxes
C) it will remain the same but the distribution of income will change since those who pay the increase in taxes are not necessarily the same people who will use the new roads
D) it will remain the same as all that has happened is that tax revenue has been spent on a project that costs the same amount

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