Assume Parliament 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:

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Quizplus · Accepted Answer

The balanced-budget approach, where government spending increases by the same amount as the tax increase, typically results in an increase in aggregate demand. This is because the multiplier effect of government spending is generally believed to be larger than the multiplier effect of a tax increase. Therefore, even though taxes are raised, the injection of government spending into the economy stimulates more economic activity, leading to an overall increase in aggregate demand.

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