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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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