True or False?
The answer is False. The question is a bit tricky but it makes an important distinction. Either the stock of bonds or the stock of base money will increase not only in the current year but every year in the future. Because taxes are cut permanently, there will be a short-fall of government revenues in relation to expenditures by $100 in every future year. Thus, new bonds will have to be sold, or new money printed, every year. The stock of bonds, or the stock of base money if money finance is used, must increase every year by $100.
Of course, the government could also cut expenditures by $100 every year in the future but then its actions would not be regarded as expansionary fiscal policy.