Deck 4: Economic Issues: Taxing, Spending, and Budgeting

Question 1

Tax reductions in the form of tax incentives can encourage corporations to

A) hire more people
B) spend more money
C) save more money.
D) invest in plant expansion.

Answer 1

D

Question 2

Because of its proportion of federal expenditures, substantially limiting federal spending requires cutting spending on _____.

A) defense
B) foreign aid
C) welfare spending
D) education

Answer 2

A

Question 3

Traditional Keynesian fiscal and monetary policy focuses on the supply of goods and services.

Answer 3

False

Question 4

During the 1980s the national debt

A) rose substantially
B) rose steadily as a percentage of GDP
C) was fueled by a steadily falling budget deficit
D) (a) and (b) only

Question 5

Fragmentation within the executive branch of government is an obstacle to developing economic policy. Which of these cabinet-level departments does not have responsibility for economic policy?

A) Treasury Department
B) Office of Management and Budget
C) Labor Department
D) Commerce Department

Question 6

The use of monetary policy and fiscal policy are the federal government's two primary instruments of accomplishing macroeconomic goals and achieving economic stability.

Question 7

Policy which encompasses government taxing and spending is:

A) fiscal policy
B) monetary policy
C) antitrust policy
D) Federal Reserve Board policy

Question 8

The impact of entitlement programs is an obstacle to effective economic policy. Which of the following are considered entitlement programs?

A) Social Security and Teach for America
B) Social Security, Medicare and Medicaid
C) Medicare, Peace Corps, and Social Security

Question 9

When government expenditures exceed revenues, we have

A) cost-push inflation
B) monetary policy
C) recession
D) deficit spending

Question 10

Progressives tend to favor limited governmental use of monetary and fiscal policies while conservatives favor a managed economy.

Question 11

Which of the following is NOT a cause of inflation?

A) increase in demand
B) increase in cost of production
C) increase in supply

Question 12

The largest portion of federal spending is allocated to ____________.

A) National defense
B) Education
C) Social Security
D) Medicare
E) Foreign Aid

Question 13

The Federal Reserve Board oversees the operations of banks that participate in the Federal Reserve System. It has the power to do the following except:

A) lend member banks money.
B) control the amount of money a bank has on reserve.
C) print money.
D) buy up governmental bond held by investors.

Question 14

During the Clinton Administration (1992-2000) the federal budget deficit

A) increased slowly
B) increased rapidly
C) remained the same
D) decreased rapidly

Question 15

During the 1990s the U.S. experienced

A) economic growth
B) low unemployment
C) low interest rates
D) all of the above
E) none of the above

Question 16

The Balanced Budget Act of 1997 and the performance of the economy in the 1990s produced the result that the federal budget deficit in the late 1990s

A) rose rapidly
B) rose slowly
C) became a surplus
D) stayed about the same

Question 17

A rise in the price of goods and services while the actual value of the goods and services remains the same is known as

A) recession
B) jawboning
C) stagflation
D) inflation

Question 18

"Jawboning" refers to:

A) town hall meetings held with congressional members
B) the administration attempt to persuade businesses and other groups to voluntarily comply with economic policy directives
C) Federal Reserve Board meetings
D) none of the above

Question 19

_____________ is the rise in price of goods and services, even though the actual value of those goods and services does not increase.

A) Recession
B) Depression
C) Inflation
D) Deregulation

Question 20

According to economists ________ percent unemployment is an appropriate definition of full employment

A) 10
B) 0
C) 5
D) None of the above

Question 21

The primary source of federal revenue is

A) the corporate income tax
B) the individual income tax
C) excise taxes
D) Social Security taxes

Question 22

According to Keynes, the federal government has an obligation to create demand by purchasing goods and services through increased spending.

Question 23

Who most influences the money supply?

A) President
B) Congress
C) Federal Reserve Board

Question 24

Supply-side tax cuts focus on upper-income levels, especially corporate profits and capital gains because

A) they are the most likely to make political contributions
B) they are the most likely to create jobs
C) they are the most likely sources of significant investment
D) they are the majority of population

Question 25

President Reagan administration's supply-side policies resulted in a 5 percent and 10 percent cuts in personal income taxes.

Question 26

The Economic Growth & Tax Relief Reconciliation Act of 2001

A) repeals the estate tax
B) increases the child tax credit
C) expires in 2010
D) all of the above

Question 27

Budget deficits after the passage of the Gramm-Rudman deficit control law:

A) increased
B) decreased
C) remained constant
D) disappeared

Question 28

A primary goal of the Fed is to regulate the economy through control over the money supply.

Question 29

Which of the following is true?

A) the corporate income tax produces the largest share of federal revenue
B) the personal income tax is now a smaller revenue producer than the Social Security tax
C) the Social Security tax is the second largest source of federal revenue
D) all of the above

Question 30

Which of the following U.S. presidents LEFT office with a budget surplus?

A) Jimmy Carter
B) Ronald Reagan
C) George H.W. Bush
D) Bill Clinton

Question 31

The largest portion of the federal budget goes to

A) Defense
B) Medicare
C) Social Security
D) Foreign aid

Question 32

Fiscal policy includes:

A) open market operations
B) control of the money supply
C) changes in the federal deficit
D) control of the reserve requirement
E) regulation of interest rates

Question 33

The shift from budget deficits to budget surpluses in 1998 was due to several factors. Which of the following was NOT a factor?

A) A strengthened economy and low inflation rate reduced the rate of increase in entitlement programs
B) The private sector experienced significant economic growth
C) Defense spending on the Persian Gulf War
D) The booming stock market in the 1990s meant higher state and federal revenues from capital gains

Question 34

Budget deficits reappeared in 2002 as a result of a number of factors. Those factors include all but

A) an economic downturn due to the September 11, 2001 terrorist attack
B) increased spending for Homeland Security efforts
C) the financial costs associated with Operation Iraqi Freedom
D) the increased cost of a barrel of oil from OPEC

Question 35

All other things being equal, a tax increase is likely to:

A) decrease inflation
B) increase inflation
C) cause the money supply to rise
D) cause the reserve requirement to decrease
E) encourage banks to loan more money

Question 36

The annual budget deficit grew from $80 billion in 1981 to $290 billion in 1992. Which of the following was NOT a factor in increasing the deficit?

A) large tax cuts in 1981-1983
B) Increased levels of defense spending in the 1980s
C) federally funded bailout of savings and loan institutions
D) federal spending on programs such as crime, transportation and education

Question 37

Interest rates for home mortgages and consumers loans rose to the 12 to 14 percents in the 1980s due to:

A) less spending by consumers
B) the federal budget deficit
C) trade imbalance
D) balanced federal budgets

Question 38

The federal budget acts as a component of fiscal policy by

A) stimulating the economy as deficits are reduced
B) stimulating the economy as deficits are increased
C) controlling the growth of the money supply
D) changing the discount rate

Question 39

In macroeconomic policy, which of the following is/are highly influential?

A) President
B) Congress
C) Federal Reserve Board
D) all of the above
E) (A) and (B) only

Question 40

A progressive tax

A) takes a higher percentage from higher incomes
B) takes a higher percentage from lower incomes
C) takes a lower percentage from higher incomes
D) takes the same percentage from all incomes

Question 41

The Balanced Budget and Emergency Deficit Control Act of 1985, known as the Gramm-Rudman included two significant changes in the federal budget process.

A) balanced budget requirement and national debt reduction
B) across the board budget cuts and agreement between Congress and the president
C) targeted deficit levels requirements and triggered automatic spending cuts
D) defense and domestic spending cuts

Question 42

Gramm-Rudman was effective in reducing the federal budget deficit only on paper.

Question 43

The Reagan administration saw inflation as a greater economic problem than unemployment. Their strategy of financing federal spending with a massive program of debt was effective against inflation and unemployment.

Question 44

The Reagan Administration advocated a departure from Keynesian economics to engage in:

A) nationalization of some public services
B) supply-side economics
C) promoting an industrial policy
D) introducing antitrust policies

Question 45

The strength of the dollar is a measure of the ability of the dollar to purchase foreign currency in international money. A strong dollar translates into

A) increase costs of imported goods to consumers
B) makes it easier to sell goods abroad
C) decreases the costs of American goods exported to other countries
D) greater purchasing power for the American dollar
E) none of the above

Question 46

Efficiency was a significant goal of the 1986 Tax Reform Act. It sought to diminish the importance of tax laws in business decision making.

Question 47

One way to stimulate growth in the economy is to

A) have a high trade deficit
B) raise taxes
C) increase the size of the federal deficit
D) increase unemployment

Question 48

Which of the following is NOT part of fiscal policy?

A) tax policy
B) open market operations
C) government expenditures
D) deficit changes

Question 49

The "flat tax" proposal would:

A) eliminate all federal taxes except the income tax.
B) combine the income tax and the social security tax.
C) eliminate many income tax deductions and reduce the number of tax brackets.
D) establish a "value-added tax."

Question 50

A basic recommendation of "supply-side economics" is:

A) decrease the budget deficit to raise interest rates
B) cut taxes to increase investment and employment
C) government should focus its spending on the military rather than on income support
D) an increase in supply will cause a decrease in demand

Question 51

The progressive wing of the Democratic Party is committed to government intervention to stabilize the economy. Their policy proposals include the following except:

A) plant closure warnings
B) industrial policy
C) an increase in the national minimum wage
D) decentralization of economic policy

Question 52

The federal budget began to produce surpluses in 1999.

Question 53

Interest payments on the national debt became a major part of federal budgets during the 1980s.

Question 54

Defense spending in 2010 is _________ more than it was in 1998

A) 100 percent
B) 250 percent
C) 10 percent
D) 25 percent

Question 55

Some economic analysts argue that the size of the total debt, projected to increase to 80 percent of GDP by 2020 is placing major pressure on the nation's economy.

Question 56

Borrowing is now the largest source of income for the federal government.

Question 57

The terms "tax reform" and "tax cuts" refer to the same thing.

Question 58

Fragmentation of responsibility for economic policy exists at the federal level.

Question 59

The United States economy is carrying over $9 trillion in debt. This deficit spending creates two policy problems.

A) the increasing size of the national debt and habit of annual deficit spending
B) spending reduction and equity of taxation
C) budget cuts and economic inequality
D) increased income for the rich and lack of relief for the majority of taxpayers

Question 60

The Tax Reform Act of 1986 was an effort to make the federal tax system fairer, simpler and more efficient. It retained many major deductions for itemizing except:

A) interest on consumer loans
B) medical expenses
C) home mortgage interest
D) charitable contribution

Question 61

The ability of an executive (President or Governor) to mark out specific items in a budget passed by the Legislature is called a

A) Strike-out Law
B) Line-item Veto
C) Pocket Veto
D) Executive Privilege Law

Question 62

Troubled Asset Relief Program (TARP) was created in part in response to the practice of lending institutions having allowed individuals to borrow money for homes well beyond their ability to repay which resulted in an escalation of mortgage defaults.

Question 63

The Budget Enforcement Act

A) increased the gasoline tax by 10 cents per gallon
B) reduced taxes on upper income groups
C) created a "Paygo" provision in federal budgeting
D) did not reduce defense spending
E) increased itemized deductions for the wealthy