A $100 billion increase in government purchases will have the same effect on real GDP as a $100billion decrease in net taxes.

Question

Quizplus · Accepted Answer

A $100 billion increase in government purchases directly increases aggregate demand and thus has a more immediate and one-to-one effect on real GDP. In contrast, a $100 billion decrease in net taxes affects real GDP through the multiplier effect, depending on the marginal propensity to consume; not all of the tax savings may be spent immediately or in the same period, making its impact on real GDP potentially different and generally less direct than an equivalent increase in government spending.

A $100 Billion Increase in Government Purchases Will Have the Same