Question 1

What is the key difference between a progressive tax and a regressive tax?

Accepted Answer

The key difference between a progressive tax and a regressive tax is the income levels of the taxpayers. In a progressive tax system, higher-income individuals pay a higher percentage of their income in taxes, while lower-income individuals pay a lower percentage. In a regressive tax system, lower-income individuals pay a higher percentage of their income in taxes, while higher-income individuals pay a lower percentage.

Question 2

A period of prolonged high unemployment with a period of decline in the gross national product (GNP) is called __________.

Accepted Answer

A period of prolonged high unemployment combined with a decline in GNP is typically referred to as a depression. A recession, on the other hand, is a period of temporary economic decline characterized by decreased economic activity and a rise in unemployment, but typically not as severe or long-lasting as a depression. Inflation, meanwhile, refers to a general increase in the price of goods and services in an economy, and stagflation is a combination of high inflation and stagnant economic growth.

Question 3

Classical economists would agree that the market adjusts itself __________.

Accepted Answer

Classical economists believe in laissez-faire economics, meaning that the market is self-regulating and does not require government intervention. Therefore, the market adjusts itself without government action according to classical economics.

Question 4

Even in a "full employment" economy, __________ percent of the labor force will be out of work.

Accepted Answer

Full employment does not mean zero unemployment. It accounts for frictional and structural unemployment, typically estimated in the range of 3 to 5 percent of the labor force.

Question 5

The mixture of the public and private economic sector depends on what?

Accepted Answer

The mixture of the public and private economic sector is dependent on government spending and taxing. This includes the government's role in regulating and overseeing private industries, providing funding for public services and programs, and implementing economic policies to address social and economic issues. Without government intervention, the economy would be entirely driven by private enterprise, which can lead to significant disparities in wealth and access to basic services. Keynesian economics, socialized medicine and education may play a role in shaping the government's economic policies, but they are not the sole determinants of the mixture of public and private sectors in the economy.

Question 6

Concerning economic policy, the U.S. Constitution __________.

Accepted Answer

The U.S. Constitution gives the government a wide range of powers, including the power to regulate commerce, establish a national currency, and levy taxes. However, it does not specify the use of a particular economic system or disallow the government from taxing income. It also does not make it impossible for the country to borrow money.

Question 7

What kind of economy has individuals and corporations own its capital or productive capacity, businesses, factories, and farms?

Accepted Answer

The characteristics described in the question are indicative of a capitalist economy, where individuals and corporations own the capital or productive capacity, businesses, factories, and farms.

Question 8

What does the United States have in common with virtually every other country?

Accepted Answer

Virtually every other country has a mixed economy, which is a blend of capitalism and socialism. In a mixed economy, the government plays a role in regulating and guiding the economy, but there is also private ownership and individual entrepreneurship. The United States is no exception, as it also has a mixed economy.

Question 9

During the New Deal era, Roosevelt and Congress cut government spending and __________.

Accepted Answer

During the New Deal era, Roosevelt and Congress followed Keynesian economics, which emphasizes government spending as a means of spurring economic growth and creating jobs. Therefore, they did not cut government spending as the question suggests.

Question 10

The 2008 bailout, in which the U.S. government gave money to several large banks to prevent them from failing, is an example of what happens in __________.

Accepted Answer

The 2008 bailout is an example of what happens in a mixed economy where the government intervenes in the market to prevent economic instability and protect the public interest. Both pure capitalist and Communist economies avoid government intervention, while socialist economies have more government control over the means of production and distribution.

Question 11

The United States can be described as a __________ economy, with both private and government ownership.

Accepted Answer

The United States has a mixed economy, meaning that it has aspects of both capitalism and socialism. While there is a strong emphasis on private ownership and free markets, the government also plays a significant role in regulating and providing services in certain areas such as healthcare, education, and infrastructure. This combination of private and public ownership and control is characteristic of a mixed economy.

Question 12

The U.S. government could not legally tax its citizens' income until the ratification of the __________.

Accepted Answer

The Sixteenth Amendment to the U.S. Constitution, ratified in 1913, gave Congress the power to levy an income tax on individuals and corporations. Prior to this amendment, the federal government relied on tariffs and excise taxes to generate revenue.

Question 13

The idea that the government can stimulate the economy by increasing spending in a time of high unemployment and cutting spending in times of low employment is associated with which economist?

Accepted Answer

The idea that government spending can stimulate the economy during a recession and that spending should be cut during times of economic growth is known as Keynesian economics, named after British economist John Maynard Keynes.

Question 14

During the nineteenth century, the U.S. government focused on encouraging economic expansion and development by __________.

Accepted Answer

The government's support for canal and later railroad construction during the nineteenth century encouraged economic expansion and development. The construction of canals, such as the Erie Canal, allowed for easier transportation of goods, while railroads further improved transportation and communication capabilities.

Question 15

When the 2009 congressional stimulus package ended, it was deemed a failure because __________.

Accepted Answer

State and local governments laid off workers despite the stimulus package. This resulted in criticism that the stimulus package failed to achieve its intended goal of boosting employment.

Question 16

Capitalism __________ promote(s) equality of opportunity.

Accepted Answer

While capitalism has the potential to promote equality of opportunity, it does not always guarantee it. Factors such as economic disparities, lack of access to education and resources, and discrimination can create barriers to equal opportunity. As a result, capitalism may not always promote equality of opportunity.

Question 17

What eventually pulled the United States out of the Great Depression?

Accepted Answer

While the New Deal programs provided some relief and the free market eventually recovered, it was ultimately U.S. entry into World War II that pulled the United States out of the Great Depression. The war effort created millions of new jobs and stimulated the economy.

Question 18

During the 1930s, the New Deal helped __________.

Accepted Answer

The New Deal implemented policies such as the National Industrial Recovery Act and the Fair Labor Standards Act, which increased regulation of wages and working conditions in order to provide relief and recovery for workers during the Great Depression.

Question 19

How does one realize an economic depression has taken place?

Accepted Answer

Prolonged high unemployment is a clear sign of an economic depression where the economy experiences a significant decrease in economic activity and production leading to a loss of jobs for many. This is often accompanied by a decrease in consumer spending and business investment, which can worsen the economic situation.

A is incorrect because significant oil price hikes could be an indication of global market trends, supply and demand factors, or geopolitical events, and not necessarily a sign of an economic depression.

B is incorrect because an increase in GDP would indicate economic growth, and not a depression.

D is incorrect because government intrusion in the economy can take many forms and does not necessarily indicate an economic depression, although it could be a contributing factor.

Question 20

The U.S. government currently owns dams, railroads, numerous resources, and __________ percent of all the land in the country.

Accepted Answer

The U.S. government owns approximately 29% of all the land in the country, including national parks, forests, and other federally owned lands.

Quiz 15: Extension 1: Focus On: Economic Policy