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

Question

BlackTom AI · Accepted Answer

Government spending is a component of aggregate demand (AD = C + I + G + NX), so raising G affects output, employment, and the government’s budget position.

1) Relevant concepts
- Fiscal policy: changes in G and taxes (T) shift aggregate demand. An increase in G raises AD directly.
- Budget balance: Budget surplus (or deficit) ≈ T − G (ignoring transfers and interest). If G rises while T stays constant, the balance falls (moves toward a deficit).
- National debt: is the cumulative sum of past deficits; larger deficits typically increase debt.
- Multiplier effect: ΔY = k · ΔG, where k = 1/(1 − MPC) (a positive ΔG raises GDP and tends to lower unemployment by increasing demand for labor).

2) Step-by-step reasoning
- Increase G → AD shifts right → output (GDP) increases through the fiscal multiplier.
- Higher output increases firms’ demand for labor → unemployment falls.
- If taxes don’t rise to offset higher G, the government runs a larger deficit this period: T − G decreases.
- A larger deficit adds to outstanding national debt.

3) Calculation example (intermediate steps)
- Suppose initial T = 100, G = 90 → budget surplus = T − G = 10.
- Increase G by 20 → new G = 110 → budget balance = 100 − 110 = −10 (now a deficit of 10).
- That deficit increases the national debt by 10 this period.
- If MPC = 0.8, multiplier k = 1/(1 − 0.8) = 5 → ΔY = 5 · 20 = +100 (GDP rises).

4) Why the correct answer is correct
An increase in government spending, holding taxes constant, reduces the budget balance (turning surpluses into smaller surpluses or deficits). Thus an increase in the budget surplus is the least likely immediate outcome.

5) Why the other options are incorrect
- a. Higher national debt: likely, because deficits from higher G add to debt.
- b. Higher GDP: likely via the multiplier effect increasing AD and output.
- d. Lower unemployment: likely as higher output requires more labor.
All three are plausible direct effects; only (c) runs counter to the budget identity without offsetting tax increases or spending cuts.

6) Conclusion
Therefore, the least likely effect is c. An increase in the budget surplus, which 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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