Economics · Fiscal Policy
According to traditional macroeconomic theory, what is the expected immediate effect of a government cutting taxes and running a budget deficit?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It signals irresponsible behavior, causing an immediate economic freeze.
- 2It prompts foreign investors to pull out of the economy rapidly.
- 3It promotes consumers to save more and reduce their spending.
- 4It encourages consumers to spend more, boosting aggregate demand.✓
Correct answer
It encourages consumers to spend more, boosting aggregate demand.
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