If the Government Increases Spending by $100 Billion but Increases

question 60

Multiple Choice

If the government increases spending by $100 billion but increases taxes by the same amount to balance the budget, what is the effect?

• A) Equilibrium real GDP increases.
• B) Equilibrium real GDP decreases by $200 billion.
• C) Equilibrium real GDP is unchanged.
• D) Equilibrium real GDP decreases by $100 billion.
• E) The price level decreases.

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Definitions:

Herbert Spencer

A British philosopher, biologist, anthropologist, and sociologist known for his contributions to Social Darwinism and the concept of survival of the fittest.

Verstehen

A German term used in sociology that refers to the understanding or interpretation of the subjective meaning that individuals attach to their actions and interactions.

Structural Analysis

A method in engineering and architecture used to determine the effects of loads on physical structures and their components.

Functionalism

A theoretical framework in social sciences that views society as a complex system whose parts work together to promote solidarity and stability.