Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It reduces overall national income.
B
It has no effect on national income.
C
It increases overall national income by the amount of the spending.
D
It decreases national income but improves the budget deficit.
Understanding the Answer
Let's break down why this is correct
Answer
The balanced budget multiplier is a concept that explains how changes in government spending and taxes can affect the economy. When the government increases spending and raises taxes by the same amount, the overall impact on the economy is generally positive. This happens because when the government spends money, it directly adds to the economy, creating jobs and increasing demand for goods and services. Even though taxes increase, people still have more money to spend because the government spending creates new income. For example, if the government spends $100 on a new school and raises taxes by $100, the school construction creates jobs, leading to more spending in local businesses, which can boost the economy overall.
Detailed Explanation
When the government spends money, it creates demand for goods and services. Other options are incorrect because Some might think that spending less overall would reduce income; It's a common mistake to think that equal spending and taxes cancel each other out.
Key Concepts
multiplier effect
economic equilibrium
Topic
Balanced Budget Multiplier Effects
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.