Maintaining a balanced budget

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Reference no: EM132181466

Suppose the government wants to keep a balanced budget, which means any change in Government spending should be offset by similar  change in Taxes. Expansionary fiscal policy can be conducted by increasing G which increases output levels. However, to maintain a balanced budget, the government will also increase Taxes at the same time, which tends to offset the effect of increased G on output level of the economy. Using the ISLM model, show if it is possible or not possible for the government to increase output levels in the economy while maintaining a balanced budget.

Reference no: EM132181466

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