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.
A)decrease;no
B)decrease;a positive
C)increase;no
D)increase;a positive
E)increase;a negative

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 larger impact than the decrease in consumption due to higher taxes.

The Balanced Budget Multiplier Applies When a $50 Billion Increase