When spending by the federal government exceeds net taxes,
A)the price level tends to rise
B)the money supply must fall
C)the aggregate demand curve shifts leftward
D)aggregate supply moves leftward
E)there is a federal budget surplus

Question

Quizplus · Accepted Answer

When the federal government spends more than it collects in taxes (deficit spending), it puts more money into the economy. This increases demand for goods and services, which can lead to higher prices (inflation) as businesses raise prices to keep up with increased demand. Therefore, the price level tends to rise.

When Spending by the Federal Government Exceeds Net Taxes