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    Question

    What is the value of the balanced budget multiplier?

    B 1 Correct Answer Incorrect Answer
    C 2 Correct Answer Incorrect Answer
    D Less than 0 Correct Answer Incorrect Answer

    Solution

    The balanced budget multiplier is one because it assumes that any increase in government spending is matched by an equal increase in taxation, resulting in a balanced budget. This means that the increase in aggregate demand brought about by increased government spending is offset by the decrease in aggregate demand brought about by increased taxation.

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