Goods market:  Balanced budget multiplier
Channel: Werner Lost
Date: 2012-01-31

In this Keynesian goods market model the balanced budget multiplier indicates that an equal change in government spending (G) and taxes (T), which leaves the budget unchanged, still have an impact on the level of output and income (Y).  If an increase in G = an increase in T it has an expansionary impact on Y equal to the initial increase.  If G increases with 200 and T increases with 200 then Y increases with 200.  The opposite happens when G and T decreases with the same amount.  In this case it has a contractionary impact on Y.