If the government increased Social Security benefits and decreased the salaries of government workers by the same amount, which of the following is the expected immediate effect?
A) an increase in the budget deficit and government purchases of goods and services
B) an increase in the budget deficit, but no change in government purchases of goods and services
C) an increase in the budget deficit and a decrease in government purchases of goods and services
D) no change in the budget deficit, because there has been no change in government purchases of goods and services
E) no change in the budget deficit, because government purchases of goods and services have decreased by the same amount as transfer payments have increased

Question

Quizplus · Accepted Answer

The budget deficit remains unchanged because the increase in transfer payments (Social Security benefits) is offset by the decrease in government worker salaries, which are both part of the government's budget but do not affect the purchase of goods and services.

If the Government Increased Social Security Benefits and Decreased the Salaries