When government spending increases and taxes are increased by an equal amount, interest rates:
A) increase.
B) remain the same.
C) decrease.
D) can vary wildly.

Question

Quizplus · Accepted Answer

When government spending increases and taxes are increased by an equal amount, the net effect is typically an increase in interest rates. This is because the increase in government spending can lead to higher demand for funds, while the increase in taxes might not immediately reduce private spending by the same amount, leading to higher interest rates as the government competes with the private sector for available funds.

When Government Spending Increases and Taxes Are Increased by an Equal