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Assume the economy is in a recession. The government has a high level of debt and wants to set a balanced budget, that is, G
Assume the economy is in a recession. The government has a high level of debt and wants to set a balanced budget, that is, G = T.
(Diagram please - This is the important part)
How can the government achieve a fiscal stimulus effect on GDP whilst keeping the budget balanced? Show how this is possible in a multiplier diagram, ensuring that you label the relevant intercepts and angles. Make the diagram sufficiently accurate so that the exact size of the multiplier is visible.
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