The balanced budget multiplier is
A) less than 1.
B) greater than 1.
C) equal to 1.
D) equal to 0.

Question

Quizplus · Accepted Answer

The balanced budget multiplier is equal to 1. This means that if the government increases its spending by a certain amount, and at the same time increases taxes by the same amount, the overall effect on output will be equal to the initial increase in spending. Therefore, the multiplier is not greater than 1 because the increase in government spending is offset by the increase in taxes. It is also not less than 1 because the increase in government spending has a one-to-one impact on output.

The Balanced Budget Multiplier Is