The balanced budget multiplier
A)increases as MPC increases
B)increases as MPC decreases
C)depends on the absolute level of government spending
D)is always greater than the government multiplier
E)is equal to 1

Question

Quizplus · Accepted Answer

The balanced budget multiplier is equal to 1 because an increase in government spending, matched by an equal increase in taxes, results in a net increase in aggregate demand equal to the initial change in spending.

The Balanced Budget Multiplier