On Balanced Budget Multiplier?

The balanced budget multiplier = 1. The balanced budget multiplier implies that if the government increases spending and taxation by the same amount, then equilibrium national income (GDP) rises by this amount.

What is the multiplier effect of a balanced budget?

The expansionary effect of a balanced budget is called the balanced budget multiplier (henceforth BBM) or unit multiplier. Here an increase in government spending matched by an increase in taxes results in a net increase in income by the same amount. This is the essence of BBM.

What is the formula of balanced budget multiplier?

Y / = ∆G + Y, Y / − Y = ∆G, ∆Y = ∆G. In this case the multiplier is found to be equal to 1 : by increasing public spending by ∆G we are able to increase output by ∆G. We have so shown that the balanced budget multiplier is equal to 1 (one-to-one relationship between public spending and output).