If the government increases spending but doesn't raise taxes,

Question

Quizplus · Accepted Answer

If the government increases spending but doesn't raise taxes, it will have to borrow money to cover the expenses. This will lead to an increase in government debt and potentially higher interest rates, but it will also increase aggregate demand without affecting the price level. The government does not need to sell assets or lower expenditures in the next year, but it may need to consider raising taxes or cutting spending in the long term to manage the debt.

If the Government Increases Spending but Doesn't Raise Taxes