An increase in government spending without any increase in taxes
A) does not increase aggregate demand.
B) would effectively eliminate an inflationary gap.
C) causes investment spending to increase.
D) requires additional government borrowing.

Question

Quizplus · Accepted Answer

An increase in government spending without any increase in taxes requires additional government borrowing. This is because the government needs to finance the spending somehow, and if it does not have enough revenue from taxes, it will have to borrow money. This could increase the government's debt, which can have long-term consequences for the economy.

An Increase in Government Spending Without Any Increase in Taxes