Assume Congress enacts a $500 billion increase in spending and a $500 billion tax increase to finance the additional government spending. The result of this balanced-budget approach is a:

Question

Quizplus · Accepted Answer

The balanced-budget approach, where an increase in government spending is matched by an equal increase in taxes, typically results in an increase in aggregate demand. This is because the multiplier effect of government spending is generally considered to be larger than the negative multiplier effect of a tax increase. Therefore, the net effect is an increase in aggregate demand, but not by the full amount of the spending increase, making the correct answer a $500 billion increase in aggregate demand.

Assume Congress Enacts a $500 Billion Increase in Spending and a $500