Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 6

Suppose that the government increases spending from G to G' while simultaneously raising taxes in such a way that, at the initial level of output, the budget remains balanced.
a. Show the effect of this change on the aggregate demand schedule.
b. How does this affect output and the price level in the Keynesian case
c. How does this affect output and the price level in the classical case