If the government increases spending by $100 billion but increases taxes by the same amount to balance the budget, what is the effect?

Question

Quizplus · Accepted Answer

When the government increases spending, it directly injects money into the economy, which can increase demand and thus increase equilibrium real GDP. The simultaneous increase in taxes does withdraw some money from the economy, potentially from consumers or businesses, but the direct impact of government spending is typically more immediate and potent in stimulating economic activity, leading to an increase in equilibrium real GDP.

If the Government Increases Spending by $100 Billion but Increases