An increase in government purchases must always be accompanied by an increase in autonomous net taxes.

Question

Quizplus · Accepted Answer

An increase in government purchases does not necessarily have to be accompanied by an increase in autonomous net taxes. Autonomous net taxes refer to taxes that do not vary with the level of real GDP. If there is an increase in government purchases, it could be financed by borrowing, increasing the budget deficit, or increasing taxes that do vary with the level of real GDP. Therefore, it is not always necessary for autonomous net taxes to increase.

An Increase in Government Purchases Must Always Be Accompanied by an Increase