When the government increases both spending and taxes by the same amount, the overall change in economic output is determined by the _____, which is typically greater than the tax multiplier.

When the government increases spending and taxes by the same amount, the overall change in economic output is influenced by what we call the "balanced budget multiplier. " This multiplier is usually greater than the tax multiplier because government spending directly adds to economic activity, while taxes reduce disposable income and spending power. For example, if the government spends $100 on building a new road, it creates jobs and stimulates the economy. At the same time, if it raises taxes by $100, people have less money to spend, but the initial government spending still boosts overall economic activity. Thus, the balanced budget multiplier shows that the positive effects of spending often outweigh the negative effects of increased taxes.