If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion,then aggregate demand
A)remains the same.
B)decreases no matter what happens to aggregate supply.
C)increases no matter what happens to aggregate supply.
D)increases only if aggregate supply increases.
E)increases only if aggregate supply decreases.

Question

Quizplus · Accepted Answer

An increase in government expenditure directly raises aggregate demand, while an increase in taxes reduces disposable income and consumption. However, the government spending multiplier is typically larger than the tax multiplier, leading to a net increase in aggregate demand.

If Government Expenditure Increases by $200 Billion and Taxes Simultaneously