If government spending and taxes increase by the same amount,

Question

Quizplus · Accepted Answer

When government spending and taxes increase by the same amount, it typically leads to an increase in aggregate demand, causing the IS curve to shift rightward. This is because the increase in government spending has a direct positive effect on aggregate demand, while the increase in taxes has a less than proportional negative effect, due to the marginal propensity to consume being less than one.

If Government Spending and Taxes Increase by the Same Amount