If the government increases both spending and taxes equally, what is the likely impact on aggregate demand?

When the government increases both spending and taxes by the same amount, the overall effect on aggregate demand can be a bit complex. Even though taxes go up, government spending directly adds to the economy because it puts money into services, infrastructure, or other public goods. For example, if the government spends $100 million on building a new highway, that money creates jobs and boosts business for construction companies. This added economic activity can lead to increased consumer spending as people earn more money from those jobs. However, since taxes also increase, some of that income may be taken away, but generally, the impact of government spending tends to be stronger, leading to a net increase in aggregate demand.