If the government increases expenditure by 40 billion and ...

[notis]

If the government increases expenditure by 40 billion and increases tax revenue by 40 billion, what is the impact on aggregate demand? Explain your answer.
 
  What will be an ideal response?

Question 2

In the figure above, if the firm is regulated using a marginal cost pricing rule, the consumer surplus created is equal to the area of
 
  A) ABG.
  B) ACF.
  C) BCFG.
  D) BCE.
  E) None of the above because there is no consumer surplus created.

[tsternbergh47]

Answer to Question 1

Aggregate demand increases. The government expenditure multiplier shows that the increase in government expenditure increases aggregate demand by more than 40 billion. And the government tax multiplier shows that the increase in tax revenue decreases real GDP by more than 40 billion. But, the magnitude of the government expenditure multiplier exceeds the magnitude of the tax multiplier, so the net effect, which is the balanced budget multiplier, is that aggregate demand increases.

Answer to Question 2

B

[notis]

Thank you

[tsternbergh47]

No problemo