Balancing new government purchases with an equivalent increase in taxes will avoid stimulus to the economy.
Answer the following statement true (T) or false (F)
False
Changes in government spending (G) are more powerful than changes in taxes (T) or transfers. As an example, when government spending increases by $250 billion, the initial spending injection will be $250 billion. When taxes increase by $250 billion, the decrease in consumption will be less than $250 billion; the remainder of taxpayers' payments will come from savings. Accordingly, the change in AD will be $250 billion when one uses the balanced budget multiplier.
You might also like to view...
A country that creates competitive advantage where there are not comparative advantages misallocates its resources and has lower national well being
Indicate whether the statement is true or false
Which of the following was formed in October 2001 to make the national antitrust laws more consistent across the developing and developed countries of the world?
a. International Cooperation Network b. International Competition Network c. International Communication Network d. International Organization for Standardization e. International Court of Justice
One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the
A. contrary opinion hypothesis. B. relevance hypothesis. C. rational expectations hypothesis. D. structural hypothesis.
Refer to the figure below.________ inflation will eventually move the economy pictured in the diagram from short-run equilibrium at point ________ to long-run equilibrium at point ________. 
A. Rising; A B. Falling; A; C C. Falling; B: C D. Rising; A; C