Adding Investment

If g and t are each increased by a particular amount

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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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