Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It leads to an increase in aggregate demand without affecting the budget deficit.
B
It has no impact on overall economic output or employment.
C
It results in a decrease in aggregate demand due to higher taxes.
D
It stimulates economic activity and can potentially increase GDP.
Understanding the Answer
Let's break down why this is correct
Answer
When the government increases spending while keeping a balanced budget, it can positively affect the economy in the short run. This is because the government spends money on projects, like building roads or schools, which creates jobs and puts more money in people's pockets. As people earn more, they tend to spend more, which boosts demand for goods and services. For example, if the government spends money to build a new park, construction workers will get paid, and they will likely spend that money at local shops. Overall, this increase in spending can help the economy grow and reduce fluctuations during tough times.
Detailed Explanation
When the government spends more money, it can help businesses and people earn more. Other options are incorrect because Some might think that more spending won't change the budget; It's a common belief that spending doesn't change anything.
Key Concepts
short-run economic fluctuations
Topic
Balanced Budget Multiplier Effects
Difficulty
easy level question
Cognitive Level
understand
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