Question

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

A) consumption and investment both increase.
B) consumption and investment both decrease.
C) consumption increases and investment decreases.
D) consumption decreases and investment increases.

Answer 1

Correct answer is (B) consumption and investment both decrease.

Step-by-step explanation:

when government spending increases and taxes increase by an equal amount there will be decrease in both consumption and investment.