Suppose That Government Purchases of Goods and Services Increase by $200

question 16

Multiple Choice

Suppose that government purchases of goods and services increase by $200 and at the same time lump-sum taxes increase by $200.Which of the following is true in this case?

• A)Whether the budget deficit will increase or decrease will depend on the value of the marginal propensity to consume.
• B)The budget deficit will increase by $200.
• C)The budget deficit will increase by $400.
• D)The budget deficit will decrease as the economy expands.
• E)There will be no change in the budget deficit.

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