If Government Increases Spending and Wants to Maintain a Balanced

question 109

Multiple Choice

If government increases spending and wants to maintain a balanced budget, it should

• A) decrease taxes by an equal amount.
• B) increase taxes by an equal amount.
• C) decrease taxes by an amount equal to the increase in spending multiplied by the tax multiplier.
• D) increase taxes by an amount equal to the increase in spending multiplied by the tax multiplier.

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Definitions:

Investment

The allocation of resources, such as capital, with the expectation of obtaining an income or profit.

Corporation

is a legal entity that is separate from its owners, with its own rights and liabilities, and is created to conduct business.

Economics

The social science that studies the production, distribution, and consumption of goods and services.

Investment

The allocation of resources, usually financial, into projects, assets, or enterprises, aiming to earn a return over time.