Equal increases in government purchases and in net taxes have equal but opposite effects on the level of real GDP demanded.

Question

Quizplus · Accepted Answer

An equal increase in government purchases and in net taxes does not have equal but opposite effects on the level of real GDP demanded. This is because the multiplier effect of government spending is typically larger than the multiplier effect of a tax change. Government spending directly increases demand, while tax changes indirectly affect demand through changes in consumer and business spending behavior.

Equal Increases in Government Purchases and in Net Taxes Have