Overview
The balanced budget multiplier is a key concept in economics that illustrates how equal increases in government spending and taxation can lead to a net increase in economic output. This occurs because government spending creates demand, which stimulates economic activity. Understanding this concept ...
Key Terms
Example: If a government spends $1 million, and the multiplier is 2, the total economic output increases by $2 million.
Example: During a recession, a government may increase spending to stimulate growth.
Example: Aggregate demand increases when consumer confidence rises.
Example: Infrastructure projects funded by the government are a form of government spending.
Example: Income tax is a common form of taxation.
Example: A country may run a budget deficit during an economic downturn.