Which of the following best explains the increase in national income that results from equal increases in government spending and taxes?
A) Consumers do not reduce their spending by full amount of the tax increase
B) The government purchases some goods that consumers would have purchased on their own anyway
C) Consumers believe all tax cuts are transitory
D) The increase in government spending causes a decrease in investment
E) Consumers are aware of tax increases but not of increase in government spending
Ans: A) Consumers do not reduce their spending by full amount of the tax increase
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