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Unformatted text preview: there is a balance.
• If G and T are each increased by a particular amount, the equilibrium level of real
output will rise by that amount. Why?
• Government Spending is a direct impact on aggregate expenditures. It is a
component of GDP.
• But, A change in taxation has an indirect impact by changing disposable income
and thereby changing consumption.
• The overall result is a net upward shift of the aggregate expenditure schedule equal
to the amount of the change in G and T.
• So, for this reason, the balance budget multiplier = 1. 30...
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- Fall '10