Chapter 31 True and False
Discretionary fiscal policy is independent of Congress and left to the discretion of state and local governments
False
A decrease in taxes is one of the options that can be used to pursue a contractionary fiscal policy
False
A large public debt will bankrupt the federal government because the federal government cannot refinance the debt or increase taxes to pay it
False
A reduction in taxes and an increase in government spending would be characteristic of a contractionary fiscal policy
False
Economists who see evidence of political business cycle argue that members of Congress tend to increase taxes and reduce expenditures before elections and to reduce taxes and increase expenditures after elections
False
Fiscal policy during the Great Recession of 2007-2009 was contractionary
False
If households expect that a tax cut will be temporary, they are likely to spend more and save less, thus reinforcing the intended effect of the tax cut of aggregate demand
False
Recognition, administrative, and operational lags in the timing of federal fiscal policy make fiscal policies more effective in reducing the rate of inflation and decreasing unemployment in the economy
False
State and local governments' fiscal policies have tended to assist and reinforce the efforts of the federal government to counter recession and inflation
False
The additional taxes needed to pay the interest on the public debt increase incentives to work, save, invest, and bear risks
False
The crowding-out effect increases the investment-demand curve and investment in private capital goods
False
The crowding-out effect when an expansionary fiscal policy decreases the interest rate, increases investment spending, and the strengthens fiscal policy
False
The cyclically adjusted budget indicates how much government must spend and tax if there is to be full employment in the economy
False
The less progressive the tax system, the greater the economy's built-in stability
False
The public debt as a percentage of GDP is higher in the United States than in most other industrial nations
False
Built-in stabilizers are not sufficiently strong to prevent recession or inflation, but they reduce the severity of a recession or inflation
True
Expansionary fiscal policy during a recession or depression will create a budget deficit or add to an existing budget deficit
True
If government spending is for public investments that increase the capital stock, then this spending can increase the future production capacity of the economy
True
Interest payments as a percentage of GDP reflect the level of taxation (average tax rate) required to service the public debt
True
Selling U.S. securities to foreigners to finance increased expenditures by the federal government imposes a burden on future generations
True
The key to assessing discretionary fiscal policy is to observe the change in the cyclically adjusted budget
True
The payment of interest on the public debt probably increases income inequality
True
The public debt is also a public credit
True
The public debt is the total accumulation of the deficits, minus any surpluses, that the federal government has incurred over time
True
To increase initial consumption by a specific amount government must reduce taxes by more than that amount because some of the tax cut will be saved by households
True
