Question

If the government lowers tax rates and tax revenue falls by $100 million, we can expect...

If the government lowers tax rates and tax revenue falls by $100 million, we can expect consumption spending to ________ and equilibrium output to ________.

Answers:

increase; increase by $100 million

increase; increase by less than $100 million

decrease; decrease by more than $100 million

decrease; decrease by $100 million

Correct option:

increase; increase by more than $100 million

For the second part of the question, why will output increase by more than $100 million?

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