If the government increases its spending but does NOT raise taxes
A) aggregate demand will increase without any effect on the price level.
B) the government will have to borrow funds.
C) the government will have to reduce the money supply.
D) the government will have to raise expenditures or lower taxes the next year.

Question

Quizplus · Accepted Answer

When the government increases its spending without raising taxes, it typically needs to borrow funds to cover the additional expenditures. This is because the government's budget must be financed either through taxes, borrowing, or printing money. In this scenario, since taxes are not raised, borrowing is the implied method to finance the increased spending.

If the Government Increases Its Spending but Does NOT Raise