ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it. The term multiplier is usually used in reference to the relationship between government spending and total national income.

Detailed explanation-3: -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.

Detailed explanation-4: -The expansion effect of a balanced budget is called the balanced budget multiplier. It measures the change in the aggregate production caused by the autonomous change in the taxes of the government. It helps to analyze the fiscal policy of the government.

Detailed explanation-5: -A change in fiscal policy has a multiplier effect on economic growth or contraction because an increase or decrease in government spending or a change in tax policy ripples through every major segment of the economy, affecting levels of spending, production, and business investment.