Question

Answer the following policy questions using the short-run model on asset and output market equilibrium (AA and DD schedules). Be sure to label your graphs and explain them in words as well. (a) What if Congress passes an amendment requiring the Federal government to keep a balanced budget? In our model, ∆G = ∆T , at all times. Can fiscal policy still affect employment and output

Answer 1

The budget has to be balanced each and every year without failure and even if the current state of the economy is not the best. A balanced amendment to the budget will probably create more problems other than just the economy. This means that the spendings of the federation need to be balanced.