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13 -- Part 2: Fiscal Policy
The impact of a balanced-budget change in government real spending is an interesting implication of the Keynesian approach.
If the government increases spending by $1 billion and raises taxes by $1 billion, it will pay for it.
A balanced-budget reduction in government spending will cause total spending to fall.
The Keynesian approach assumes that the price level is fixed as a first approximation.
The nominal GDP is equal to the price level.
If additional factors of production, such as labor, are utilized, the additional real GDP can be produced.
There is a marginal propensity to save.
If government expenditures increase by $2 billion.
Asking lowing questions.
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