Answer to Question #64983 in Economics of Enterprise for mo

Question

We've seen that the government spending multiplier and the multiplier for changing taxes are different. For political and macroeconomic reasons governments often run balanced budgets. Suppose that G=T. Then suppose that the government increases spending and taxes equally to maintain a balanced budget. IE that:



\begin{align*}
G^{'}&=G+\Delta\\
T^{'}&=T+\Delta
\end{align*}

What is the value of the balanced budget multiplier. IE what multiple of delta does Y increase?



https://fred.stlouisfed.org/series/GDPC1



https://fred.stlouisfed.org/series/UNRATE