Define the balanced budget multiplier and explain how it works. In your answer, ignore any supply-side effects
What will be an ideal response?
The balanced budget multiplier indicates the effect on aggregate demand of a simultaneous change in government expenditure and taxes that leaves the budget balance unchanged. Suppose the government increases its expenditure and taxes by the same amount. The tax increase decreases aggregate demand but the increase in expenditure increases aggregate demand. The increase in aggregate demand from the increase in government expenditure is greater than the decrease in aggregate demand from the increase in taxes. Thus, on net, aggregate demand increases and the amount of the increase is indicated by the balanced budget multiplier.
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An externality
A) may be positive or negative. B) means a rapidly rising cost borne by consumers. C) is the cost of producing a good outside the United States. D) is the indirect cost, the overhead, of producing a product.
Microeconomics only looks at the behavior of one consumer or one firm in a market, while macroeconomics looks at the behavior of an entire industry or group of consumers
Indicate whether the statement is true or false