Suppose the federal government needs to balance the budget, which means that whe

Question

Suppose the federal government needs to balance the budget, which means that when the government spending increases, taxes must increase equally. In this case, government spending multiplier is called the balanced-budget multiplier, defined as the increase in real GDP/increase in government spending. By following the example from the previous question, how mcuh is the balanced-budget multiplier?





Please enter a whole number, with no decimal point.

Explanation / Answer

2. The short-run (SR) equilibrium is the intersection between AD and SRAS, and long-run (LR) equilibrium is the intersection between AD and LRAS. Every LR equilibrium is a SR equilibrium, but a SR equilibrium is not always the LR equilibrium. If an economy is operating at a SR equilibrium where Y > Yf, which of the following will occur in the process toward the new LR equilibrium when the economy corrects itself? A. Price increases. B. Real GDP decreases. C. Unemployment rate falls. D. Only A and B. E. Only B and C. B. Real GDP decreases.---ans

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