The balanced budget multiplier is
A)equal to zero because taxes and government expenditure are changed to leave the budget balanced.
B)misnamed because it does not leave the budget balanced.
C)greater than zero and less than the government expenditure multiplier.
D)greater than zero and greater than the government expenditure multiplier.
E)less than zero,that is,it is negative.

Question

Quizplus · Accepted Answer

The balanced budget multiplier is greater than zero but less than the government expenditure multiplier because in the balanced budget scenario, an increase in government expenditure is offset by an equal increase in taxes, which reduces disposable income and therefore consumption. As a result, the overall effect on aggregate demand is less than if there were no increase in taxes.

The Balanced Budget Multiplier Is