What Is Meant By The Term Called Balanced Budget Multiplier (KBB)?

According to the classical economists each government should purse the policy of balanced budget; the expenditure of a government must be equal to its revenues. In such situation the budget is neutral having no multiplier effects on the economy. But in recent days the theory of KBB states that the balanced budget is also furnished with the multiplier effects and normally the value of KBB is one.

The main theme behind KBB is this, that the government makes expenditures which match with the revenues raised through taxes. In other words, government imposes taxes equal to the expenditures which it has to make. In this way, the change in government expenditures will be equal to change in taxes.

Now there is a question that what will be the effect on national income as a result of change in government expenditures while the change in expenditures are equal to change in taxes. The answer in this respect is this, that change in national income will be equal to the change in government ... more.

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