3. Imagine that Congress passes a constitutional amendment requiring the U.S. government to maintain a balanced budget

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3. Imagine that Congress passes a constitutional amendment requiring the U.S. government to maintain a balanced budget at all times. Thus, if the government wishes to change government spending, it must change taxes by the same amount, that is, AG - AT always. Does the constitutional amendment imply that the government can no longer use fiscal policy to affect employment and output? (Hint: Analyze a "balanced-budget" increase in government spending, one that is accompanied by an equal tax hike.)

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International Economics Theory And Policy

ISBN: 9780321116399

6th Edition

Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz

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