Impact of Government Purchases on Equilibrium GDP:

- An increase in government purchases will shift the aggregate expenditure line upward in the Keynesian cross model.
- This will lead to an increase in equilibrium GDP as the new level of government purchases will add to the total aggregate expenditure in the economy.
- The multiplier effect will further amplify this increase in GDP as the initial increase in government purchases will lead to higher income and consumption, further boosting aggregate demand.
- Therefore, an increase in government purchases will result in a higher equilibrium GDP in the economy.

Impact of Taxes on Equilibrium GDP:

- An increase in taxes will reduce disposable income for households, leading to a decrease in consumption spending.
- This will shift the aggregate expenditure line downward in the Keynesian cross model, resulting in a lower equilibrium GDP.
- The multiplier effect will further magnify this decrease in GDP as the initial decrease in consumption will lead to lower income and further reductions in spending.
- Therefore, an increase in taxes will result in a lower equilibrium GDP in the economy.

Impact of Equal-Sized Increases in Government Purchases and Taxes on Equilibrium GDP:

- When government purchases and taxes both increase by equal amounts, the net effect on equilibrium GDP will depend on the relative magnitudes of the changes.
- If the increase in government purchases is larger than the increase in taxes, the overall effect will be an increase in equilibrium GDP.
- Conversely, if the increase in taxes is larger than the increase in government purchases, the overall effect will be a decrease in equilibrium GDP.
- Therefore, equal-sized increases in both government purchases and taxes can have differing effects on equilibrium GDP depending on the relative sizes of the changes.