State Balanced Budgets and Federal Fiscal Policy
How do balanced budget requirements for many state and local governments influence the effectiveness of federal fiscal policy intended to combat a recession?
A
It amplifies the effects of federal fiscal policy by encouraging state and local governments to increase borrowing
B
It may counteract federal expansionary fiscal policy by forcing state and local governments to cut spending or raise taxes
C
It has no significant impact on federal fiscal policy as state and local budgets are relatively small
D
It enhances the effectiveness of federal fiscal policy by providing a stabilizing force in the economy
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