ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -In traditional Keynesian goods-sector models the BBM will equal one. In other words, the change in gross national product is equal to the change in government expenditure or the change in taxation, i.e.: BBM = Y/G = 1, where G is the change in government expenditure and Y is the change in gross national product.

Detailed explanation-3: -The balanced budget multiplier is always equal to one because of the equal changes in aggregate demand and government purchases and taxes, meaning that the changing ratio will always be equal to one (1) despite the changes.

Detailed explanation-4: -A measure of the change in aggregate production caused by equal changes in government purchases and taxes. The balanced-budget multiplier is equal to one, meaning that the multiplier effect of a change in taxes offsets all but the initial production triggered by the change in government purchases.