Answer to Question #97397 in Macroeconomics for Tiffany

Question

2. Apply your knowledge of the AD/AS model to predict the effect on economic variables (i.e., P, RGDP, interest rates, wages, savings and spending) of some events on the U.S. economy. Diagram the effect of the following events. Be sure to explain the effects in the short run and effects in the long run for each question, in words. To keep things clear, assume that in each case the economy starts out at long-run equilibrium.
c. The government increases both taxes and spending by $500 billion. The money is spent domestically. Hint: Be sure to provide a strict interpretation of the AD/AS model as part of your answer.

Answer 1

so if the government increases both taxes and spending by $500 billion, there will be no impact on the economy, as the cost multiplier and tax multiplier mutually exclude each other's impact.

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/national-income-and-price-determinations/multipliers-ap/a/lesson-summary-the-expenditure-and-tax-multipliers