ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the impact of G>T
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the impact of G<T
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the impact of G = T
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the impact of G≤T
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Detailed explanation-1: -The balanced-budget multiplier measures the change in aggregate production triggered by an autonomous change in government taxes. This multiplier is useful in the analysis of fiscal policy changes that involves both government purchases and taxes.
Detailed explanation-2: -In macroeconomics, balanced budget multiplier estimates the change in income level when the government decides to bring the equal amount of changes in the taxes and government expenditure. The value of balanced budget multiplier is always equal to 1.
Detailed explanation-3: -The expansionary effect of a balanced budget is called the balanced budget multiplier (henceforth BBM) or unit multiplier. Here an increase in government spending matched by an increase in taxes results in a net increase in income by the same amount. This is the essence of BBM.
Detailed explanation-4: -The balanced budget multiplier analyses what will happen when there is an equality between the changes in the government expenditure and government revenue so that the budget is balanced. It is the sum of the expenditure multiplier and tax multiplier. It is always equal to 1.