Can someone explain why this is the answer for this
multiple-choice, and not one of the others. I have a hard time
understanding the concept.
Thank you.
For this question, assume that we are in the short-run (no price
fluctuations) and that we consider the goods market in isolation.
The government wants to boost the economy by increasing government
spending. At the same time, to keep the public debt constant, it
also increases taxes. The combination of these two policies
will:
a) cancel each other so that,
eventually, output remains unaffected.
b) lead to an increase in output
that is larger than the increase in government spendings because
the multiplier is larger than one.
c) lead to a decrease in output
because of the increase in taxes.
d) lead to an increase in output
that is smaller than the increase in government spendings because
the multiplier is smaller than one.
e) none of the
above.
Can someone explain why this is the answer for this multiple-choice, and not one of the others. I have a hard time under
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