Deck 16: Government and the Economy

Question 1

When the price level of goods and services increases over several months, it is called

A) monetarism.
B) a deficit.
C) open-market operations.
D) inflation.
E) recession.

Answer 1

D

Question 2

Which of the following statements best describes the federal government's role in higher education?

A) The federal government determines which classes will be taught in colleges and universities but provides no financial assistance for higher education.
B) The federal government provides all of the funding for higher education, but state and local governments are placed in charge of operating colleges and universities.
C) The federal government supports higher education through educational grants, tax breaks, and loans.
D) The federal government is in charge of running the day-to-day operations of every college and university around the country.
E) The federal government plays no role whatsoever in higher education.

Answer 2

C

Question 3

What did the Great Depression and World War II do to the public's expectations regarding employment?

A) They made Americans realize that unemployment was an unfortunate but largely irremediable occurrence.
B) They made Americans realize that unemployment could only be solved by a major international crisis, such as a war.
C) They showed that the government could help to ensure full employment.
D) They showed that the government could only solve unemployment when inflation levels were kept high.
E) They showed that ill-advised government programs could cause large increases in unemployment.

Answer 3

C

Question 4

Which of the following are the three basic prerequisites for economic growth?

A) public investment, economic regulation, strong workforce
B) domestic investment, foreign investment, government regulation
C) foreign investment, strong workforce, economic regulation
D) public investment, government investment, financial stability
E) public investment, innovation, strong workforce

Question 5

Why do many businesses prefer Congress to regulate the economy?

A) Regulations are more cost-effective in the long run.
B) One national regulation is better than the inconsistencies and disparities of different state laws.
C) Businesses argue that regulations help to increase their market share.
D) Regulations lead to a fairer and more equitable marketplace.
E) Regulations help businesses net more profit.

Question 6

What event marked the major historical turning point in the relationship between the government and the marketplace?

A) the Civil War
B) the Depression of 1896
C) the Great Depression
D) World War II
E) the implementation of Reaganomics

Question 7

Which of the following has not been a major goal of the government's involvement in the economy?

A) promoting economic equity and fairness for all citizens
B) promoting economic stability
C) encouraging business development and innovation
D) stimulating economic growth
E) protecting employees and consumers

Question 8

According to many analysts, the spurt of economic growth in 2003 illustrates that

A) the federal government can always produce large levels of economic growth if it makes the right decisions regarding deficit spending.
B) inflation is always a problem that government should attempt to solve.
C) inflation is not a problem that government should attempt to solve.
D) some kinds of public investment, such as military spending on wars, can produce economic growth as a byproduct of pursuing other, more central objectives.
E) public investment always reduces economic growth and should, therefore, be eliminated.

Question 9

The federal government's role in providing electricity to rural areas is an example of the fact that

A) government often supplies public goods that are too big or risky for private actors to tackle.
B) private businesses are always more efficient at providing public goods and services than government actors.
C) government never gives up control of an industry once they have started to regulate it.
D) state governments are not allowed under the Constitution to engage in any activity related to the provision of public goods.
E) the federal government has rarely undertaken projects to produce public goods.

Question 10

Which of the following is not a function of the Securities and Exchange Commission?

A) It requires companies to disclose information about the stocks and bonds that they are selling.
B) It informs buyers of investment risks.
C) It protects the confidentiality of all sales of stocks and bonds.
D) It protects investors against fraud.
E) It helps the government promote reliable access to new investments through its regulation of financial markets.

Question 11

Which of the following statements about the relationship between government and capitalism is false?

A) Government makes it possible for markets to function efficiently.
B) Government rule-making means that people no longer need to rely on personal trust when conducting business.
C) Before the Progressive era, the marketplace was untouched by government interference.
D) Markets break down in nations that have weak governments.
E) There is much disagreement among the public and politicians over the extent of the role the government should play in the economy.

Question 12

Which of the following is the best example of a public good?

A) a computer
B) the interstate highway system
C) the airline industry
D) Wall Street
E) Harvard University

Question 13

The Securities and Exchange Commission was established

A) at the same time as stocks were publicly bought and sold.
B) after the stock market crash of 1929.
C) at the same time as the International Monetary Fund.
D) after the market crash of 1987.
E) after the terrorist attacks of 2001.

Question 14

Something that must be supplied by the government because it cannot be provided by the marketplace is called

A) a public good.
B) a commodity.
C) a governmental appropriation.
D) pork.
E) public option.

Question 15

When the government's goals are embodied in a law or an order, backed by punishments or rewards, it is best described as

A) public policy.
B) regulation.
C) administrative rule making.
D) legislation.
E) implementation.

Question 16

The goal of the Works Progress Administration (WPA) was to

A) put unemployed persons to work on public projects.
B) establish federal standards for hiring, firing, and laying off employees.
C) begin the nationalization of the American labor force.
D) help distribute food and aid to unemployed workers.
E) require companies to hire laid-off workers who had been out of work for six months or more.

Question 17

The index of the total output of goods and services produced in a national economy is called the

A) federal funds rate.
B) inflation index.
C) gross domestic product.
D) monetary fund.
E) consumer price index.

Question 18

Public policy can be embodied in all of the following forms except

A) a law.
B) an administrative rule.
C) an order.
D) regulation.
E) a petition.

Question 19

Which of the following was a driving force for economic growth during the late nineteenth century?

A) agriculture
B) war
C) manufacturing industries
D) government work projects
E) international trade

Question 20

What is the most important way the government affects personal and corporate investments?

A) granting tax breaks for stock gains and losses
B) promoting investor confidence through policies enforcing stability and regard for the law
C) allowing Social Security pensions to be invested in the stock market
D) requiring that all stock and bond transfers remain confidential
E) bailing out corporations like GM that are considered "too big to fail"

Question 21

______ is the current chair of the Federal Reserve Board, appointed by George W. Bush in 2005.

A) Paul Volcker
B) Alan Greenspan
C) Ben Bernanke
D) Henry Paulson
E) Donald Kohn

Question 22

How did the Federal Reserve respond to the terrorist attacks of 9/11?

A) It cut interest rates to promote increased investment and spending.
B) To relieve fear, it required that Wall Street be open for business throughout the emergency.
C) The Federal Reserve demanded, and received, a seat on the National Security Council.
D) All of the above were responses by the Federal Reserve to 9/11.
E) It did not do anything; that was the problem.

Question 23

The National Labor Relations Act was designed to

A) oversee union elections and collective bargaining between labor and industry.
B) prohibit workers from forming unions.
C) establish a national minimum hourly wage.
D) limit the amount of money labor unions and corporations could donate to political parties.
E) regulate contractual negotiations between private businesses competing in the same industry.

Question 24

Upton Sinclair's 1906 exposé The Jungle revealed the

A) widespread use of child labor in coal mines and factories throughout the United States.
B) violent suppression of labor unions by big business.
C) control of politicians by corporate interests who run the political machines.
D) unsanitary practices at meatpacking plants.
E) violent uprisings of union members across the United States.

Question 25

If the Federal Reserve wants to help boost a sagging economy, which one of the following is the most direct way it can do this?

A) Raise interest rates so that banks can earn more money on the loans they provide to individuals and businesses.
B) Lower interest rates so that banks can provide more loans at cheaper rates to individuals and businesses.
C) Take money out of circulation so that the dollar becomes more valuable.
D) Raise the reserve requirement, restricting the amount of cash and negotiable securities banks must have on hand.
E) Lower tariffs so that corporations can trade more freely with foreign countries.

Question 26

Before the 1930s, relations between labor and management in the United States were

A) defined by peaceful negotiations.
B) heavily regulated by the national government.
C) among the most violent in the world.
D) dependent on labor unions for stability.
E) stable.

Question 27

All of the following are strategies to combat inflation except

A) pushing up interest rates in order to restrain the amount of credit in the economy.
B) increasing the amount of government spending on public works projects.
C) instituting wage and price controls.
D) cutting taxes.
E) raising Social Security taxes.

Question 28

Which of the following actions marked a decisive break with the tradition of the federal government promoting compromises between labor and management?

A) In 1981, Ronald Reagan fired striking air traffic controllers and hired permanent replacements to fill their jobs.
B) In 1985, Reagan sent in the National Guard to break up picketing in front of major defense contractors, such as Lockheed and Boeing.
C) In 1992, Congress passed and George H. W. Bush signed legislation dismantling the National Labor Relations Board.
D) In 1994, Congress passed and Bill Clinton signed legislation permitting companies to shut down without giving their employees advance notification.
E) The 1934 National Labor Relations Act set up a framework for labor relations.

Question 29

Which of the following is not a power of the Federal Reserve Board?

A) the power to increase or decrease the interest rate it charges on the loans it extends to member banks
B) the power to control the reserve requirement
C) the power to buy and sell government securities in order to increase or decrease the supply of money in the economy
D) the power to manipulate the interest rate charge by one bank to another on loans in the federal funds market
E) the power to enforce the federal government's antitrust policies

Question 30

Vehicle safety is one of the chief responsibilities of the Department of

A) Transportation.
B) Consumer Safety.
C) Commerce.
D) the Interior.
E) Health and Human Services.

Question 31

Open-market operations describe the

A) government policy, beginning in the 1950s, of reducing tariffs on foreign products.
B) requirements that publicly owned businesses honestly report their earnings and losses.
C) method by which the Federal Reserve buys and sells government securities to increase or decrease the supply of money in the economy.
D) policy of deregulation pursued during the 1980s by the Reagan administration.
E) way in which the U.S. government purchases stocks and bonds from foreign corporations.

Question 32

Which of the following statements about the Federal Reserve Board (FRB) is false?

A) The FRB is part of the Department of the Treasury.
B) The FRB is the main organization for setting monetary policy.
C) The members of the FRB are selected by the president and confirmed by the Senate.
D) The president cannot remove at will the members of the FRB.
E) The FRB sets the federal funds rate.

Question 33

Which of the following is not a way in which the government promotes business development?

A) subsidies
B) tax breaks
C) loans
D) regulations
E) grants

Question 34

Tax increases on middle- and lower-class people fight inflation because

A) these groups are the most likely to spend their money in rational ways.
B) these groups are the least likely to spend their money in rational ways.
C) these groups are the lightest consumers and taxing them places more dollars in consumption.
D) these groups are the heaviest consumers and taxing them takes dollars out of consumption.
E) these groups are the most likely to benefit from government services.

Question 35

Which of the following does the Small Business Administration (SBA) provide?

A) insurance
B) legal council
C) disaster assistance
D) subsidies
E) grants

Question 36

Which of the following was not one of the goals of the American Recovery and Reinvestment Act of 2009?

A) encourage economic growth
B) develop weatherization projects and clean technology construction
C) save existing jobs that might be lost due to the economic recession
D) provide for a national health care system
E) make longer-term investments to encourage job creation

Question 37

Which of the following was not a major form of economic promotion by the federal government in the nineteenth century?

A) land grants to railroad companies
B) agricultural subsidies
C) public works projects
D) tariffs
E) building roads and canals to tie states and regions together

Question 38

During the 1960s, Ralph Nader was influential as a(n)

A) environmental activist.
B) consumer advocate.
C) presidential candidate.
D) corporate spokesman.
E) member of Congress.

Question 39

Which of the Founders was most responsible for establishment of the Bank of the United States?

A) Thomas Jefferson
B) James Madison
C) John Adams
D) Alexander Hamilton
E) Benjamin Franklin

Question 40

______ are given to states and local governments on the condition that all expenditures are limited to the problem or group specified by law.

A) Tariffs
B) Loopholes
C) Monopolies
D) Categorical grants
E) Block grants

Question 41

The power to raise or lower the tax rate is part of

A) fiscal policy.
B) monetary policy.
C) the contracting power.
D) discretionary spending policy.
E) budgetary policy.

Question 42

The tax reform laws of 1981 and 1986 were significant because they

A) permanently increased the reserve requirement.
B) lowered the federal funds rate.
C) made budget deficits illegal.
D) significantly reduced the progressiveness of the federal income tax.
E) significantly increased the progressiveness of the federal income tax.

Question 43

Approximately what percentage of the federal budget is made up of uncontrollables?

A) 25 percent
B) 35 percent
C) 42 percent
D) 60 percent
E) 90 percent

Question 44

What is the reserve requirement?

A) the requirement that the federal government have at least 10 percent of the federal deficit on hand in liquid assets at all times
B) the rule that every bank must have a certain amount of cash and negotiable securities on hand at all times
C) the demand that there should never be more money circulating in print or computer accounts than there is gold in the U.S. Bank
D) the requirement that the Federal Reserve Board limit the deficit to 10 percent of the gross domestic product
E) the interest rate on loans between banks that the Federal Reserve Board influences by affecting the supply of money available

Question 45

______ are government grants of cash or other valuable commodities, such as land, used to promote activities desired by the government.

A) Contracts
B) Tax credits
C) Business development funds
D) Categorical grants
E) Subsidies

Question 46

______ were the centerpiece of George W. Bush's economic policy.

A) Protective tariffs
B) Tax cuts
C) Antiglobalization measures
D) Agriculture subsidies
E) Categorical grants

Question 47

If a new tax on luxury goods, such as sports cars, boats, and helicopters, were passed in order to reduce the disparities between the highest and lowest income brackets, we would refer to this as a(n)

A) entitlement program.
B) tariff.
C) regressive tax policy.
D) policy of redistribution.
E) loophole.

Question 48

A(n) ______ is an incentive in the tax code for individuals and corporations to invest their money in ways the government desires in exchange for a reduction in tax liabilities.

A) categorical grant
B) loophole
C) federal funds rate
D) open-market operation
E) subsidy

Question 49

In order to have reliable information about the costs and impact of economic policies, Congress created the ______.

A) Federal Reserve Board
B) Office of Management and Budget
C) Congressional Budget Office
D) Congressional Oversight Commission
E) Congressional Research Service

Question 50

Which of the following statements best characterizes the percentage of the federal budget that is spent on mandatory programs?

A) Spending on mandatory programs increased between 1962 and 1990 but has decreased dramatically since 1990.
B) Spending on mandatory programs decreased between 1962 and 1990 but has increased dramatically since 1990.
C) Spending on mandatory programs has remained constant since 1970.
D) Spending on mandatory programs has grown dramatically since 1970.
E) Spending on mandatory programs has declined dramatically since 1970.

Question 51

A tax on imported goods is called a

A) regressive tax.
B) public good.
C) tariff.
D) monopoly tax.
E) progressive tax.

Question 52

When people in the lower income brackets pay a larger percentage of their income toward a tax, it is called ______ taxation.

A) progressive
B) regressive
C) inflationary
D) redistributive
E) distributive

Question 53

The Interstate Commerce Act and the Sherman Antitrust Act are examples of the federal government's attempt to

A) control discretionary spending.
B) deregulate the economy.
C) regulate large businesses that established monopolies.
D) control mandatory spending.
E) close tax loopholes.

Question 54

The ______ is determined by the amount by which government spending exceeds government revenue in a fiscal year.

A) budget deficit
B) inflation rate
C) gross domestic product
D) reserve requirement
E) gross national product

Question 55

Sales taxes are ______, and most income taxes are ______.

A) regressive; regressive
B) progressive; progressive
C) progressive; regressive
D) regressive; progressive
E) high; low

Question 56

______ policies are designed to eliminate the abuses of powerful ______.

A) Redistributive; tariffs
B) Fiscal; loopholes
C) Antitrust; monopolies
D) Taxation; gross domestic product indexes
E) Monetary; interest groups

Question 57

What did Congress see as the principal cause of the economic recession that began in 2008?

A) too much government spending on social welfare programs
B) not enough government spending on social welfare programs
C) the high prices Americans pay for health care and health insurance
D) excessive risk taking by investors
E) too much government regulation on risk-trading (or "derivatives") markets

Question 58

Which of the following statements about the United States budget deficit is most accurate?

A) The federal deficit has decreased dramatically since 2000.
B) The federal budget showed a large surplus throughout the 1980s.
C) The federal budget deficit increased dramatically after 2001.
D) The federal budget has not shown a surplus since 1960.
E) The federal budget deficit was at its largest point in history in 1992.

Question 59

Before World War II, ______ of federal revenue was generated from individual income taxes.

A) less than 15 percent
B) a quarter
C) half
D) 80 percent
E) 100 percent

Question 60

Which of the following is not an example of mandatory spending?

A) farm price supports
B) Social Security payments
C) defense spending
D) Medicare
E) interest payments on the national debt

Question 61

Which of the following is the best description of the changing expectations of government's role in the economy since the 1930s?

A) People hold the government responsible for a healthy economy.
B) People demand that the government provide health insurance.
C) People expect that the government will engage in deficit spending for the public welfare.
D) People expect the government to print more money in times of inflation.
E) People expect the government to stay completely out of the economy.

Question 62

Setting emissions standards for each industry, while allowing companies to trade "carbon credits," is an approach to environmental policy known as

A) cap and trade.
B) the green alternative.
C) NIMBY.
D) the Wall Street cooler.
E) the Gore protocol.

Question 63

Classic laissez-faire theory argues all of the following except that

A) government monopolies depress economic growth.
B) people's selfishness can promote the public good.
C) a truly efficient government allows private enterprise to provide all government services.
D) economic competition unleashes growth and innovation.
E) government should stay out of the private sector except when providing a select number of public goods.

Question 64

The Kyoto Protocol was designed to

A) set binding targets for greenhouse gas emissions to be met by each country.
B) restrict the proliferation of nuclear reactors used to generate both weapons and energy.
C) reduce the debt obligations for African nations by over 50 percent.
D) establish a global ban on whaling.
E) set limits on the amount individuals can drive vehicles per year.

Question 65

Those who believe in ______ argue that the government's role in regulating the economy should be limited to regulating the supply of money.

A) Keynesianism
B) monetarism
C) fiscalism
D) inflation
E) laissez-faire capitalism

Question 66

Adam Smith's theory of ______ argues that many individual economic transactions come together to create a greater good for all.

A) rational expectations
B) the prisoner's dilemma
C) the invisible hand
D) trickle-down economics
E) collective action

Question 67

Which of the following was not a result of the 2009 Copenhagen Summit?

A) The meeting ended with no legally binding agreement between countries and no deadline set to reach one.
B) The meeting ended with a legally binding agreement between countries to limit greenhouse emissions across the world.
C) Wealthy nations agreed to provide annual funds to developing nations to help them integrate clean technology.
D) The meeting marked the first time the developing world, including major polluters such as China, committed to reducing their carbon output.
E) The meeting failed to set a global target for reducing greenhouse emissions.

Question 68

The idea that the government can stimulate a slow economy by increasing public spending or cutting taxes is called

A) laissez-faire economics.
B) Keynesianism.
C) social democracy.
D) rational choice theory.
E) monetarism.

Question 69

When did Keynesian economic ideas lead to a revolution in thinking about the role of the government in the economy?

A) the 1890s
B) the 1930s
C) the 1960s
D) the 1980s
E) the 1990s

Question 70

Why have politicians always favored using subsidies to promote certain economic activities?

A) They can be treated as "benefits" that can be spread widely in response to many demands.
B) They are generally cheaper than other forms of government support.
C) Recipients are always required to pay back the subsidies.
D) Congress does not have to pass legislation in order to provide subsidies.
E) They are paid for through international tariffs rather than personal income taxes.

Question 71

Most of the groundbreaking environmental laws were written in the

A) 1950s.
B) 1970s.
C) 1980s.
D) 1990s.
E) 2000s.

Question 72

Who was the most prominent monetarist in the United States?

A) John Locke
B) Adam Smith
C) John Maynard Keynes
D) Milton Friedman
E) Joseph Schumpeter

Question 73

Who among the following advocated for laissez-faire capitalism?

A) John Maynard Keynes
B) Milton Friedman
C) Joseph Schumpeter
D) Karl Marx
E) Adam Smith

Question 74

Which of the following is not a benefit to government provided by contracting?

A) Government can acquire services or products at a cheaper rate than if government were to produce them itself.
B) Government can use its contracting power to encourage desirable behavior among those businesses that have contracts with the government.
C) Government can use contracting to encourage industries, universities, and other organizations to engage in valuable research.
D) Government can use contracting to help build up certain segments of the economy.
E) Government officials almost always use contracting to award businesses and corporations that donated substantial amounts of money to their political campaigns.

Question 75

Which U.S. president once said, "I am now a Keynesian"?

A) Herbert Hoover
B) Richard Nixon
C) Ronald Reagan
D) George W. Bush
E) Franklin Roosevelt

Question 76

What economic development, according to many critics, has made Keynesian economics less useful?

A) the end of the Cold War
B) the rise of international trade
C) the Internet
D) the rise of a service economy
E) the increasing federal budget deficit

Question 77

The United States has ______ percent of the world's population and is responsible for ______ percent of its greenhouse gas emissions.

A) 1; 5
B) 10; 25
C) 5; 45
D) 20; 60
E) 25; 10

Question 78

Which of the following is not one of the concerns politicians have to consider when attempting to pass regulations that seek to protect the environment?

A) Compliance with environmental regulations can be very costly.
B) Federal environmental standards are often set "too high."
C) Who should bear the costs of providing environmental benefits?
D) Scientific evidence can change, making some environmental regulations obsolete.
E) Public opinion overwhelmingly favors economic interests over the environment.

Question 79

Green technologies may prove to be a boon for the American economy because

A) the United States has already signed trade agreements with numerous countries to export green technologies.
B) the United Nations has passed a resolution asserting that only the United States will be allowed to produce green technologies for the next ten years.
C) the profit margins on green technologies are much higher than those of more traditional products.
D) many countries around the world have decided to use only energy efficient products.
E) America's highly skilled labor force provides them with a competitive advantage over many other countries.

Question 80

Which statement is the key argument of John Maynard Keynes?

A) Government can pull an economy out of a recession by stimulating demand and creating a cycle of increased production and jobs.
B) Government regulations during economic depressions must be lifted because they destroy the already slim profit margin.
C) The economy of size shows that monopolies are the most efficient way to distribute goods throughout a national marketplace.
D) A well-functioning economy need never experience an economic downturn.
E) Government can rectify a falling economy by regulating the money supply.