The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion ________ in tax revenue and the balanced budget multiplier shows that in this case there is ________ effect on aggregate demand.

Question

Quizplus · Accepted Answer

The balanced budget multiplier indicates that an equal increase in government spending and taxes leads to a positive effect on aggregate demand, as the increase in government spending has a direct impact, while the tax increase has a smaller indirect effect.

The Balanced Budget Multiplier Applies When a $50 Billion Increase