Author Question: If government increases taxes by the same amount it increases government spending, there will be no ... (Read 99 times)

Diane · **on:** Jun 29, 2018

If government increases taxes by the same amount it increases government spending, there will be no effect on aggregate demand: the increase in government spending is offset by an equal decrease in consumption spending by households.

Indicate whether the statement is true or false

Question 2

Suppose you withdraw 1,000 in cash from your checking account. Draw a T-account to show the effect of this transaction on your bank's balance sheet.

What will be an ideal response?

xMRAZ · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

FALSE

Answer to Question 2

The withdrawal of 1,000 from your checking account will reduce the bank's checking account deposits and reserves by 1,000.

Assets Liabilities
Reserves -1,000 Deposits -1,000