If the government increases spending and raises taxes by just enough to finance this increase it will ?
Correct answer: B. increase output
- A. leave output unchanged
- B. increase output
- C. reduce output
- D. increase the MPC
Explanation
The balanced-budget multiplier is one: an equal increase in government spending and taxes raises output by the amount of the spending increase, because spending has a stronger direct effect than taxation has initially.
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