The balanced budget multiplier is
A)positive because the magnitude of government expenditure multiplier is larger than the magnitude of tax multiplier.
B)negative because the magnitude of government expenditure multiplier is larger than the magnitude of the tax multiplier.
C)positive because the magnitude of government expenditure multiplier is smaller than the magnitude of tax multiplier.
D)equal to zero.
E)negative because the magnitude of the tax multiplier is larger than the magnitude of the government expenditure multiplier.

Question

Quizplus · Accepted Answer

The balanced budget multiplier refers to the increase in equilibrium output that results from an equal increase in government spending and taxes, such that the budget deficit (or surplus) remains unchanged. The government expenditure multiplier is larger in magnitude than the tax multiplier because a given change in government spending has a more direct and immediate impact on aggregate demand than the same change in taxes, which may be partially saved or used to pay off debt. Therefore, the overall effect of an equal increase in both government spending and taxes is a net increase in equilibrium output, leading to a positive balanced budget multiplier.

The Balanced Budget Multiplier Is