Deck 18: The Economy, Government, and Economic Challenges Facing the United States

Question 1

The Keynesian Revolution introduced the concept that government:

A) should not intervene in the economy.
B) must resist the desire to stabilize the economy.
C) should not be concerned with unemployment figures.
D) can and should play a stabilizing role in the economy.

Answer 1

D

Question 2

Fluctuations in aggregate output are often called:

A) business cycles.
B) steady states.
C) events.
D) developments.

Answer 2

A

Question 3

What is fiscal policy? What is monetary policy? Why are these two policies called primary macroeconomic policies? How does monetary policy differ from fiscal policy?

Answer 3

Fiscal policy is a policy of using the government surplus or deficit to influence the level of spending and income in the economy. If spending is too low, the government typically runs a budget deficit, which adds spending to the total flow of income in the country and has a multiplied effect on the total level of spending. This can be useful in stimulating the economy out of a recession. Monetary policy is an economic policy where the Federal Reserve Bank (Fed) varies the level of money and credit in the economy to affect the level of income. It affects the interest rate, making it easier or harder to borrow money, which in turn changes the level of income. These two policies are called macroeconomic policies because the concern is on the whole, or aggregate, society. They are both policies conducted at the federal level aimed at stabilizing the economy but differ in who performs these policies. The executive branch of the government conducts fiscal policy, and the Fed conducts monetary policy.

Question 4

Describe the problem facing the U.S. Social Security system.

Question 5

According to the U.S. Department of Commerce
(2018), which receives the highest percent of local outlay?

A) Medicare.
B) Social Security.
C) Health.
D) Education and public welfare.

Question 6

The first comprehensive government-administered social insurance system was enacted in:

A) France.
B) Canada.
C) Sweden.
D) Germany.

Question 7

The effects of a firm's actions or decisions that negatively affect others but that the firm does not consider when undertaking the action are called:

A) externalities.
B) manifest consequences.
C) the cost of doing business.
D) ancillaries.

Question 8

What is the fiscal crisis facing the United States? What will the government have to do to solve it? Describe how the phrase "no free lunch" applies to the possible solutions of our fiscal crisis.

Question 9

Annually, the U.S. federal, state, and local governments together collect ____ in taxes.

A) $4 trillion
B) $6 trillion
C) $15 billion
D) $85 billion

Question 10

Macroeconomic policies of government concern:

A) individuals.
B) only large states.
C) only general welfare as a whole.
D) only some parts of the larger economy.

Question 11

What is an example of how the government directs the flow of profits toward corporations and away from consumers?

A) The extension of patent rights.
B) Price controls.
C) Regulations on safety and quality.
D) Price fixing.

Question 12

What is the government's direct role in the economy? How do federal and state governments spend their budgets? What are the three sources from which governments receive funding?

Question 13

According to the U.S. Department of Commerce
(2018), which receives the highest percent of federal outlay?

A) Medicare.
B) Health.
C) Social Security.
D) Defense.

Question 14

The U.S. Social Security system paid out almost immediately the money it took in. Thus, it was not funded:

A) like a bank.
B) like insurance.
C) like an investment company.
D) like a profit corporation.

Question 15

The need for government stabilization policies through regulation comes from the tendency for the aggregate economy to:

A) remain the same.
B) fluctuate.
C) Self-regulate.
D) maintain equilibrium.

Question 16

How is global warming an economic issue? What are economic answers to the problem of global warming, and what are criticisms of our current solution? Why must solutions to global warming occur at a global level?

Question 17

From 1929 to 1932, U.S. industrial production and national income:

A) rose by 33 percent.
B) dropped by about half.
C) increased by 25 percent.
D) dropped by about 90 percent.

Question 18

Which of the following is not a way the U.S. directly influences the distribution of income?

A) A progressive income tax system.
B) Low-income tax credits.
C) Licensing of certain professions.
D) Entitlement programs that favor the poor.

Question 19

To maintain its dominance in a globalized economy and the higher wages that go with that dominance, the United States will have to maintain:

A) a technological edge.
B) a larger workforce.
C) outsourcing.
D) a high standard of living.

Question 20

Collective consumption goods more efficiently supplied by government than by individuals are sometimes called:

A) commodities.
B) public goods.
C) collective holdings.
D) national treasures.

Question 21

The policy of using the government budget surplus or deficit to control the level of spending in the economy is called:

A) monetary policy.
B) foreign policy.
C) fiscal policy.
D) general policy.

Question 22

At one time in the history of the U.S. progressive income tax system, the top federal tax on high-income individuals was over 90 percent.

Question 23

In our free enterprise system, the government has no control over economic activities in the private sector.

Question 24

The Copyright Term Extension Act of 1998 is often called the "Ronald McDonald Protection Act."

Question 25

Regulations that impose significant costs but do not provide the funds to pay these costs are called:

A) economic inducements.
B) unfunded mandates.
C) economic stimulators.
D) hidden benefits.

Question 26

In the early- to mid-2000s, the Social Security system ratio had about one person drawing out for every twenty people paying in.

Question 27

Each year, the federal and state governments spend over $4 trillion and $1 trillion respectively to fund their activities.

Question 28

The fiscal policy rule of thumb allows that some government budget deficits can be useful in stimulating the economy out of a:

A) slump.
B) recession.
C) depression.
D) boom.

Question 29

The government passing a law that requires drivers to have car insurance is an example of the indirect influence of the economy.

Question 30

The Fed can help the economy by controlling:

A) bailout legislation.
B) interest rates.
C) exchange rates.
D) the president's economic agenda.

Question 31

Because of government's large indirect role, we call our economic system a pragmatic market economy rather than a
(n):

A) hybrid economy.
B) unplanned economy.
C) free market economy.
D) planned economy.

Question 32

Monetary policy does NOT affect:

A) the level of income directly.
B) interest rates.
C) credit availability.
D) inflation.

Question 33

The majority of federal revenue comes from Social Security taxes.

Question 34

The passing of a law that required all public buildings to be accessible to all individuals was an example of laissez-faire economic involvement.

Question 35

Social Security was called an insurance plan but actually does not meet that definition.

Question 36

Since taking office, President Trump has targeted which role of the government in the economy?

A) The business cycle.
B) Printing currency.
C) Social Security.
D) Regulation.

Question 37

Money has value because the Fed:

A) backs its notes with silver.
B) backs its notes with gold.
C) issues notes in any amount in unlimited quantities.
D) issues only a limited quantity of its notes.

Question 38

Large-scale regulations have brought about a reaction on the part of some people supporting the doctrine of:

A) socialism.
B) laissez-faire.
C) reinvestment.
D) antitrust laws.

Question 39

The single largest government expenditure program is the Social Security system.

Question 40

If a firm is too big to fail, economists argue it is too big to be regulated.

Question 41

The government has a strong incentive to run a deficit.

Question 42

The U.S. is in the globalization crisis today because it violated what is called the economic law of one price.

Question 43

Government's direct role in the economy involves its control of the laws that specify what individuals and businesses can and cannot do.

Question 44

In the next 15 years, the Social Security system will be supporting many more retirees than it does now, while at the same time having many fewer contributors per retiree.

Question 45

The Keynesian view helped create the field of macroeconomics.

Question 46

In the 1970s, the government instituted many security programs and took a greater role in maintaining the level of employment and in stabilizing the economy.

Question 47

A depression is a period of drastic decline in an economy.

Question 48

One of the most controversial forms of government involvement in the economy is through microeconomics.

Question 49

Contractionary monetary policy makes credit harder to get, raises interest rates, and has a downward effect on the level of income.

Question 50

Debt contracts the economy and does not serve a useful purpose.

Question 51

There are many aspects of borrowing that are risky, but promised future payments on pensions are relatively safe.

Question 52

Social Security is a pay-as-you-go system that depends on how many people are paying into it.

Question 53

A general fiscal policy is that if total spending in the economy is too low, the government should run a budget surplus.

Question 54

Economics alone provides a relatively easy answer to economic issues in the United States, and there is little to be done politically.

Question 55

The role of government in the economy is:

A) indirect and hidden.
B) both direct and indirect.
C) direct and obvious.
D) obscure and covert.