Suppose the federal government increased spending by $10 billion and raised taxes by $10 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Question

Quizplus · Accepted Answer

When the government increases spending, it directly injects money into the economy, likely increasing aggregate demand. The tax increase could potentially offset this by reducing consumers' disposable income, but government spending tends to have a more immediate and direct impact on the economy. Therefore, the net effect is likely an increase in real equilibrium GDP.

Suppose the Federal Government Increased Spending by $10 Billion and Raised