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Macroeconomics

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Balance Budget Policy

MACRO-Z6WZE1

Assume a budget bill is introduced which includes a large increase in government spending in order to stimulate the economy, but many congressmen are concerned about the size of the national deficit and so they insist that the bill includes an equivalent increase in taxes (assume they are lump sum taxes).

According to the Keynesian model of business cycles, what will happen to output if the bill is passed with an equivalent sized spending and tax increase?

A

Increase

B

Decrease

C

Stay the same