Question

The "Balanced Budget Multiplier" states that if the government increases expenditure and taxes by the same amount, the net effect on national income is:

Q: Answer-The 'Balanced Budget Multiplier' states that if the government increases expenditure and taxes by th...

The multiplier for government spending G is 11-MPC. The multiplier for taxes T is -MPC1-MPC. The net effect is 11-MPC -MPC1-MPC 1-MPC1-MPC 1. So, if G T, then Y 1 G. The multiplier is unity.

A Zero

B Positive and equal to the change in government spending.

C Positive but less than the change in government spending.

D Negative.

E Infinite.

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The "Balanced Budget Multiplier" states that if the government increases expenditure and taxes by the same amount, the net effect on national income is:

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