?Suppose that government purchases of goods and services increase by $200 and at the same time lump-sum taxes increase by $200. Which of the following is true in this case?
a. The budget deficit will decrease as the economy expands.
b. ?There will be no change in the budget deficit.
c. ?Whether the budget deficit will increase or decrease will depend on the value of the marginal propensity to consume.
d. ?The budget deficit will increase by $200.
e. ?The budget deficit will increase by $400.
Ans: a. The budget deficit will decrease as the economy expands.
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