The balanced budget multiplier says that

Question

Quizplus · Accepted Answer

The balanced budget multiplier theory states that an increase in government spending can be offset by an equal increase in taxes, resulting in no increase in the budget deficit. However, it also suggests that such an increase in government spending paid for by an equal increase in taxes would shift the aggregate demand curve rightward, as the increase in government spending would result in an increase in output and employment, which would increase consumer spending, leading to a further increase in output and employment. Therefore, option C is the correct choice.

The Balanced Budget Multiplier Says That