Question

The aggregate expenditures model demonstrates that balanced budget (equal increases in government spending and taxes) in modern economies

Answer 1

This statement is true. The basic premise of Aggregate Expenditure Model is that the amount of goods and services produced and therefore the level of employment are directly related to the total spending or aggregate expenditures.Businesses will only produce/or have an output in which they can make a profit by selling. This model answers the question like what causes real GDP to rise in one period and to fall in another, and what determines the level of GDP given a nation's production capacity. Balanced budget multiplier is an equal change in government spending and taxes, which changes aggregate demand by the amount of the change in the gov ernment spending. Balanced budget multipliers always equal1.