3. For both political and macro-economic reasons, governments are often reluctant to run budget deficits. Here, 1 we examine whether policy changes in G and T that maintain a balanced budget are neutral for the macro economy. Put another way, we examine whether it is possible to affect output through changes in G and T so that the government budget remains balanced. Start with equation (3.7): Y 1-a (co++6–97). (a) By how much does Y increase when G increases by one unit? (b) By how much does Y decrease when T inceases by one unit? (c) Why are your answers to (a) and (b) different? Suppose that the economy starts with a balanced budget: T = G. If the increase in G is equal to the increase in T, then the budget remains in balance. Let us now compute the balanced budget multiplier. (d) Suppose that both G and T increase by exactly one unit. Using your answers to parts (a) and (b), what is the change in equilibrium GDP? (e) How does the value of the marginal propensity to consume affect your answer? Why?