Suppose that the government increases its spending by 10 per cent and also increases it autonomous taxes by 10 per cent. We would expect this to:

Question

Quizplus · Accepted Answer

Increasing government spending directly injects money into the economy, boosting demand and potentially increasing national income. Raising autonomous taxes could potentially offset some of this effect by reducing disposable income and consumption. However, the immediate impact of increased government spending is typically more direct and potent in stimulating economic activity compared to the dampening effect of higher taxes, leading to an overall expansionary effect on national income.

Suppose That the Government Increases Its Spending by 10 Per