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

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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 & Policy

ISBN: 9780138002121

8th Edition

Authors: Paul R Krugman, Maurice Obstfeld

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