Balancing New Government Purchases with an Equivalent Increase in Taxes

question 2

True/False

Balancing new government purchases with an equivalent increase in taxes will avoid stimulus to the economy.
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.

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