The new classical critique of fiscal policy asserts that
A) decreases in government spending and increases in taxes are largely offset by increases in savings.
B) recognition lags make it difficult to time fiscal policy.
C) implementation lags make it hard to get fiscal-policy proposals through the government.
D) impact lags make it difficult to know how much the spending multiplier will impact the total income in an economy.
E) increases in government spending and decreases in taxes are largely offset by increases in savings.

Question

Quizplus · Accepted Answer

The new classical critique of fiscal policy argues that increases in government spending and decreases in taxes are largely offset by increases in savings. This is because individuals and businesses will anticipate future tax increases or reduced government spending and will adjust their behavior accordingly, saving more in anticipation of the future tax burden. Therefore, the impact of fiscal policy on aggregate demand is muted.

The New Classical Critique of Fiscal Policy Asserts That