Fiscal policy measures of the same dollar amounts will have equal effects on the budget balance but may change real GDP by different amounts.

Question

Quizplus · Accepted Answer

Fiscal policy measures can have different multiplier effects on the economy depending on their design and timing. This means that measures of the same dollar amounts may lead to different changes in real GDP, depending on factors such as the effectiveness of the measure in stimulating demand, the degree of spare capacity in the economy, and the potential crowding-out effects of increased government borrowing. However, in terms of their impact on the budget balance, measures of the same dollar amounts will have equal effects, assuming all other factors are equal.

Fiscal Policy Measures of the Same Dollar Amounts Will Have