The balanced-budget multiplier is equal to

Question

Quizplus · Accepted Answer

The balanced-budget multiplier is the change in real GDP resulting from an equal change in government spending and taxes, such that the budget balance (government spending minus taxes) remains unchanged. Mathematically, it can be expressed as:
Balanced-budget multiplier = (Government spending multiplier) + (Tax multiplier)
Since the government spending multiplier and tax multiplier have opposite effects on real GDP, their sum determines the net effect of a balanced-budget policy, which is generally assumed to be less than the government spending multiplier, but greater than the tax multiplier. Therefore, the correct option is B, which adds the two components of the balanced-budget multiplier.

The Balanced-Budget Multiplier Is Equal to