Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 13: Q3. (page 479)

Is the following statement true or false? Explain. “When the government expands, the private sector shrinks; when the government shrinks, the private sector expands.”

Short Answer

Expert verified

The given statement is ambiguous.

Step by step solution

01

Explanation

The private sector will grow with a contractionary fiscal policy and crowd out when there is an expansionary fiscal policy. Suppose an economy is fully employed, then the expansionary fiscal policy will crowd out the private sector. When there is a recessionary gap in the economy, the expansionary fiscal policy will expand the private sector, and contractionary fiscal policy will result in the contraction of the private sector. Thus, the given statement can be true or false; hence, the statement is ambiguous.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Explain why states required by their constitutions to balance their budgets are likely to experience more severe economic fluctuations than states not held to that requirement.

Explain how each of the following events would affect the public debt or implicit liabilities of the U.S. government, other things equal. Would the public debt or implicit liabilities be greater or smaller?

a. A higher growth rate of real GDP

b. Retirees live longer

c. A decrease in tax revenue

d. Government borrowing to pay interest on its current public debt

Why is the cyclically adjusted budget balance a better measure of whether government policies are sustainable in the long run than the actual budget balance?

How did the political reaction to government funding for the Solana project differ from the reaction to more conventional government spending projects such as roads and schools? What does the case tell us about how to assess the value of a fiscal stimulus project?

Explain how a contractionary fiscal policy like austerity can make it more likely that a government is unable to pay its debts.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free