The balanced budget multiplier says that

Question

Quizplus · Accepted Answer

The balanced budget multiplier suggests that an increase in government spending paid for by a tax cut of equal size will increase aggregate demand by the same amount as the increase in government spending. This is because the tax cut will stimulate consumption and, therefore, increase the aggregate demand. This will lead to an increase in output, income, and employment. Therefore, the answer is C, as this option correctly suggests that this policy will shift aggregate demand rightward.

The Balanced Budget Multiplier Says That