A tax increase of $250 will exactly offset a $250 increase in government purchases, leaving aggregate demand unaffected.
Answer the following statement true (T) or false (F)
False
When government spending increases by $250, the initial spending injection will be $250. The decrease in consumption due to a $250 tax increase will be less than $250; the remainder of taxpayer's payment will come from savings. Accordingly, the change in AD will be $250 when one uses the balanced budget multiplier.
You might also like to view...
The above table has the demand and supply schedules for money. Real GDP increases and, as a result, the demand for money increases by $0.1 trillion at each level of the nominal interest rate. The new equilibrium interest rate is
A) 5 percent. B) 2 percent. C) 10 percent. D) 3 percent. E) 7 percent.
When spending by the federal government exceeds net taxes, _____
a. the price level tends to fall b. the money supply must fall c. the aggregate demand curve shifts rightward d. aggregate supply moves rightward e. there is a federal budget surplus