It is impossible for the government to maintain a balanced budget while using fiscal policy to eliminate a recessionary gap.
An increase in government spending paid for by a tax increase of equal size shifts aggregate demand to the right through the balanced budget multiplier.Therefore,it may be difficult,but not impossible,to maintain a balanced budget while using fiscal policy to eliminate a recessionary gap.

Question

Quizplus · Accepted Answer

The balanced budget multiplier suggests that an equal increase in government spending and taxes can still increase aggregate demand, making it possible to maintain a balanced budget while addressing a recessionary gap.

It Is Impossible for the Government to Maintain a Balanced