If the federal government were to increase its purchases of goods and services by $1 billion, and increase income tax collections by $1 billion, the two policies would:

Question

Quizplus · Accepted Answer

The increase in government purchases directly increases aggregate demand, while the increase in taxes could potentially reduce consumption. However, the multiplier effect of government spending is typically larger than the effect of a tax increase, leading to an overall expansion in output and employment.

If the Federal Government Were to Increase Its Purchases of Goods