Fiscal Policy Practice Test

In the short run, the economy is experiencing inflationary pressure. The government increases taxes (T) by $20\text{ billion}$ while keeping government purchases (G) unchanged, moving the budget toward a surplus. Following the change in government spending/taxes, which statement best describes the short-run effect on aggregate demand?

In the short run, the economy is experiencing inflationary pressure. The government increases taxes (T) by $15\text{ billion}$ and decreases government purchases (G) by $15\text{ billion}$, moving the budget toward a surplus. Following the change in government spending/taxes, which outcome is most likely in the short run?