Suppose the Government Increases Both Spending and Taxes by 100

question 56

Multiple Choice

Suppose the government increases both spending and taxes by 100. According to the balanced budget multiplier, which of the following is likely to happen?

• A) The equilibrium level of output in the economy will decrease.
• B) The marginal propensity to consume will increase.
• C) The marginal propensity to consume will decrease.
• D) The equilibrium level of output in the economy will increase.

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Definitions:

3M Corporation

A multinational conglomerate corporation known for products like Post-it Notes, Scotch tape, and a wide range of industrial and consumer goods.

Venture Capital

Financing that investors provide to startup companies and small businesses believed to have long-term growth potential.

Start-up Firms

Newly established businesses, often in the early stage of development and research of their products or services.

Retained Earnings

The portion of a company's profits that is held or retained and not paid out as dividends to shareholders, often reinvested in the business.