What is a balanced government budget? Explain the multiplier effect of a balanced budget

● If the revenue of the government is just equal to the government expenditure made by the general government it is called a balanced budget.

● Balanced budget = Estimated govt. receipt = estimated govt. expenditure

● The expansion effect of a balanced budget is called the balanced budget multiplier.

● It measures the change in the aggregate production caused by the autonomous change in the taxes of the government.

● It helps to analyze the fiscal policy of the government.

● The balanced budget refers to the equality between the earning and spending of the government.

● The balanced budget multiplier analyses what will happen when there is an equality between the changes in the government expenditure and government revenue so that the budget is balanced.

● It is the sum of the expenditure multiplier and tax multiplier.

● It is always equal to 1.

● The positive impact on the aggregate production caused by the change in the government purchase will mostly be offset by the negative impact of the change in the taxes.