The balanced budget multiplier means that government spending, when financed by taxes, cannot affect the economy.

Question

Quizplus · Accepted Answer

The balanced budget multiplier refers to the situation when an increase in government spending is financed by an equal decrease in taxes, so that the overall budget remains balanced. In this case, the multiplier effect of government spending on the economy would still occur, as it would increase aggregate demand and potentially lead to an increase in economic activity.

The Balanced Budget Multiplier Means That Government Spending, When Financed