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Suppose That Government Purchases of Goods and Services Increase by $200

Question 46

Multiple Choice

Suppose that government purchases of goods and services increase by $200 and at the same time lump-sum taxes are increased by $200.(It is important to note that income tax rates do not change.) Which of the following is true?


A) Whether the budget deficit increases or decreases will depend on the value of the MPC.
B) The budget deficit will increase by $200.
C) The budget deficit will increase by $400.
D) The budget deficit will decrease as the economy expands.
E) There will be no change in the budget deficit.

Correct Answer:

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