Which of the following is the least likely effect of an increase in government spending?

Question

BlackTom AI · Accepted Answer

An increase in government spending raises aggregate demand (AD), shifting the AD curve rightward and putting upward pressure on output and employment while worsening the fiscal balance unless taxes rise more than spending.

1) Relevant concepts
- Fiscal policy: G (government spending) and T (tax revenue) determine the budget balance: Budget surplus = T − G. If G increases and T is unchanged, the surplus falls (or a deficit increases).
- Aggregate demand and output: Higher G raises AD directly, increasing GDP and reducing unemployment (via higher demand for goods and labor).
- National debt: Larger deficits imply the government must borrow, increasing national debt.

2) Step-by-step reasoning
- Raise G while holding taxes constant: AD increases → firms produce more → GDP rises. Higher production requires more labor → unemployment falls.
- The budget balance changes: surplus = T − G. With G larger and T unchanged, surplus decreases; if the increase in G exceeds any tax changes, the government runs a larger deficit and borrows, raising national debt.

3) Simple numerical illustration
- Suppose T = 200 and initial G = 180 → surplus = 200 − 180 = +20.
- Increase G by 40 → new G = 220 → surplus = 200 − 220 = −20 (now a deficit). The government must finance this by borrowing, so national debt rises.

4) Why the correct answer is correct
- Option d (an increase in the budget surplus) is least likely because higher spending directly reduces the surplus unless the government simultaneously raises taxes by an even larger amount — a less immediate or “likely” outcome of a spending increase.

5) Why the other options are likely
- a: Higher GDP is likely due to the demand boost.
- b: Higher national debt is likely if deficits rise and borrowing is used.
- c: Lower unemployment is likely because output and labor demand increase.

Conclusion: Therefore the least likely effect is d. An increase in the budget surplus (matches the provided correct answer).

Which of the following is the least likely effect of an increase in government spending?单项选择题

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