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ECON Ch. 30 True/False

Expansionary fiscal policy is so-named because it involves an expansion of the nation’s money supply
False
Fiscal policy is complicated by political considerations and political motivations.
True
As measured by the standardized budget, the U.S. government engaged in a contractionary fiscal policy in 2002 and 2003.
True
Built-in stability is synonymous with discretionary fiscal policy
False
An increase in the cyclical deficits will automatically increase the standardized budget deficit
False
The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks
True
A decrease in government spending is one of the options that can be used to pursue a contractionary fiscal policy
True
The crowding-out effect occurs when an expansionary fiscal policy increases the interest rate, decreases investment spending, and weakens fiscal policy
True
A contractionary fiscal policy shifts the aggregate demand curve leftward
True
Fiscal policy is mainly undertaken by the Federal Reserve
False
The payment of interest on the public debt probably decreases income inequality
False
Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war
False
Tax increases and government spending cuts by state governments during recessions often reduce the expansionary impact of fiscal policy by the Federal government
True
Tax revenues automatically increase during economic expansions and decrease during recessions
True
Permanent tax reductions are more likely to be expansionary than temporary tax reductions
True
Budget surpluses from 1998 to 2001 gave way to deficits because a recession reduced tax revenues
The actual budget may be in deficit while the standardized budget is in surplus
Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions
True
Between 1994 and 2000, annual budget deficits gave way to annual budget surpluses
True
Demand-pull inflation can be restrained by increasing government spending and reducing taxes
False
If taxation becomes more progressive, the built-in stability in the economy will increase
True
The concept of a “political business cycle” suggests that a possible cause of macroeconomic instability is due to the use of fiscal policy for political purposes
True
The crowding-out effect of the public debt may be dampened if the investment-demand curve is shifting to the right
True
The per capita public debt doubled between 1990 and 2000
False
The public debt is the accumulation of all deficits and surpluses that have occurred through time
True
The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds
True
The actual and standardized budgets will be equal when the economy is at full employment
True
The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes
False
If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion
True
Half of the public debt is owned by foreign individuals and institutions
False
The public debt as a percent of GDP is lower in the United States than in many other industrial nations
True
If government spending that gives rise to a budget deficit is for public investment projects, such as highways, then this spending can increase the economy’s future production capacity
True
A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other
False
An increase in taxes would be an expansionary fiscal policy
False
The financing of the public debt can increase interest rates and reduce private investment spending
True
Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP
False
The Council of Economic Advisors was established to give economic advice and assistance to the U.S. President
True
If there is a Federal budget surplus, then government revenues are greater than its expenditures
True
A large public debt will not bankrupt the Federal government because it can refinance the debt or increase taxes to pay it
True
State and local governments’ fiscal policies typically reinforce the fiscal policy of the Federal government to counter recession and inflation
False
Discretionary fiscal policy is independent of Congress and based on the progressivity of the tax system
False
The United States has experienced both budget surpluses and deficits over the past decade
It is more meaningful economically to measure the public debt relative to the GDP than to measure it in absolute terms
True
The tax cut passed in 2001 by Congress and the Bush administration was implemented to stop a recession
The operational lag of fiscal policy refers to the time that elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening
False
An increase in taxes and a decrease in government spending would be characteristic of a contractionary fiscal policy
True
Most of the public debt can be considered a public credit
True
The standardized budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions
True

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