Assume the economy is operating below full employment. Which of the following policies will increase aggregate demand, but will not increase U.S. national debt? Increase government spending without changing tax rates.Increase government spending and increase taxes by the same amount.Decrease tax rates and leave government spending unchanged.Give everyone a $1,400 fiscal stimulus check and increase government spending by $1.9T.

National debt will increase when there is a budget deficit. A budget deficit occurs when government spending is greater than taxes, or when government spending increase without an increase in taxes, or when taxes decrease without decreasing government spending. An increase in government spending and/or a decrease in taxes leads to an increase in aggregate demand. An increase in government spending without an increase in taxes will increase the aggregate demand but also lead to a rise in national debt. ----------- An increase in government spending and increase in taxes by the same amount will increase the aggregate demand by the same amount too due to the balanced budget multiplier and it lead to no change in national debt -------------- Decrease tax rates lead to an increase in aggregate demand but also leads to an increase in national debt ------------- Answer; Option (2), i.e., Increase government spending and increase taxes by the same amount

Answered: Assume the economy is operating below…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume the economy is operating below full employment. Which of the following policies will increase aggregate demand, but will not increase U.S. national debt?

Increase government spending without changing tax rates.
Increase government spending and increase taxes by the same amount.
Decrease tax rates and leave government spending unchanged.
Give everyone a $1,400 fiscal stimulus check and increase government spending by $1.9T.

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