Which combination of ﬁscal policy actions would most likely offset each other?
A) increase both taxes and government spending
B) decrease taxes and increase government spending
C) increase taxes but make no change in government spending
D) decrease government spending but make no change in taxes

Question

Quizplus · Accepted Answer

Increasing taxes and government spending simultaneously would likely offset each other because the increased taxes reduce disposable income and therefore, aggregate demand, while the increased government spending increases aggregate demand. The net effect on the economy may be limited.

Which Combination of ﬁScal Policy Actions Would Most Likely Offset