Answer to Question #235605 in Macroeconomics for Ridhima Mittal

Question

What is balanced budget multiplier? What will happen to AD(AE) curve if government spending and taxes increase by the same quantum?

Answer 1

Balanced budget multiplier tends to be a measure of aggregate production changes resulted by equal government taxes and purchases changes.

When the government spending increase, the level of output similarly increases. This moves the AD(AE) curve upwards.