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 typically shifts aggregate demand outward, so...

1) Relevant knowledge points and concepts
- Fiscal policy: government spending (G) is a component of aggregate demand (AD = C + I + G + NX).
- Short-run effects: higher G raises AD, increasing real GDP and lowering unemployment via the multiplier.
- Budget balance and national debt: higher G, if not offset by higher taxes, increases the fiscal deficit and therefore tends to reduce the budget surplus or increase debt.
- Financing: deficits are financed by borrowing, which raises national debt.

2) Step-by-step reasoning
- Step 1: Raise G → AD increases.
- Step 2: Increased AD → firms produce more to meet demand → output (GDP) rises.
- Step 3: Higher output requires more workers → unemployment falls.
- Step 4: Unless taxes rise or spending elsewhere falls, higher G increases the government deficit (G − T increases), reducing any surplus.
- Step 5: To cover larger deficits, the government borrows → national debt rises.

3) Calculations (conceptual)
- Budget balance = Tax revenue (T) − Government spending (G).
- If G increases and T is unchanged: Budget balance falls ⇒ surplus decreases (or deficit increases). No numerical values needed to see the direction.

4) Why the correct answer is correct
An increase in government spending is least likely to cause an increase in the budget surplus because higher spending, all else equal, worsens the fiscal balance. Only if spending triggers sufficiently large increases in tax revenue (from higher GDP) that exceed the extra spending would the surplus rise—an uncommon and special-case outcome. Therefore an increase in the budget surplus is the least likely immediate effect.

5) Why the other options are incorrect
- a (Lower unemployment): Likely, because higher AD raises output and employment.
- b (Higher national debt): Likely if deficits are financed by borrowing.
- d (Higher GDP): Likely as AD shifts right, increasing real GDP in the short run.

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