Deck 15: Economic Policy

Question 1

What did the Employment Act of 1946 do?

A) guaranteed World War II veterans the right to employment
B) provided higher education assistance to 7.8 million World War II veterans
C) created new regulations and safeguards to protect against inflation
D) guaranteed all Americans the right to unemployment insurance
E) created the Council of Economic Advisers and made full employment a goal of economic policy

Answer 1

E

Question 2

Supporters of the Federal Reserve System argue that it allows the president to have final influence and control over the nation's economic policies.

Answer 2

False

Question 3

The current chair of the Federal Reserve is Ben Bernanke.

Answer 3

False

Question 4

A loaf of bread that costs $2 today might cost $3 in 20 years. This is an example of inflation.

Question 5

The Treasury Department is responsible for coordinating budget requests and aiding the president in the creation of an annual budget.

Question 6

High interest rates can have serious effects on the economy because businesses are less willing to take on debt to expand their production.

Question 7

In making the past few nominations for Federal Reserve Board chair, the president has been highly motivated by partisan politics, giving preference to members of his own political party.

Question 8

Tax policy is inherently conflictual because:

A) America has to pay a portion of its taxes to the United Nations.
B) the federal income tax is regressive.
C) tax policy often involves redistributing money from one group to another.
D) federal taxes have increased to their highest levels in U.S. history.
E) the U.S. Constitution allows the president and Congress to pass their own separate budgets, pitting them against one another.

Question 9

Payroll taxes are a regressive tax.

Question 10

Although many argue that employment is important for a healthy economy, the U.S. government has never made full employment an explicit goal of its economic policy.

Question 11

Keynesian economic theory would encourage lawmakers to run federal deficits during a recession to give a short-term boost to the economy but would encourage lawmakers to cut government spending when the economy is strong and consumer demand is high.

Question 12

The Office of Management and Budget (OMB) has the power to restrict how much money Congress is allowed to spend each fiscal year.

Question 13

A progressive tax means that wealthier individuals pay higher tax rates and poorer individuals pay lower tax rates.

Question 14

When the economy goes into a deep, widespread, and prolonged downturn, it is called an:

A) economic regression.
B) economic hardship.
C) economic deficit.
D) economic depression.
E) economic setback.

Question 15

Economists consider the natural rate of unemployment to be around:

A) 2 to 2.5 percent.
B) 5 to 5.5 percent.
C) 10 to 10.5 percent.
D) 14 to 14.5 percent.
E) 25 to 25.5 percent.

Question 16

When U.S. manufacturers are having difficulty selling their goods in foreign nations, the solution to this problem is a strong U.S. dollar.

Question 17

Budgetary spending that is required by law is called "mandatory spending."

Question 18

The pay-as-you-go (PAYGO) provision requires Congress to figure out how to pay for new expenditures and determine which expenditures to cut if it implements a tax cut.

Question 19

When there is too much money flowing and too few goods, it is likely to lead to:

A) tax cuts.
B) a rise in taxes.
C) inflation.
D) an interest rate cut.
E) stagnation.

Question 20

Stagflation involves rising prices and high unemployment.

Question 21

If inflation starts to increase, the Federal Reserve is likely to:

A) decrease interest rates.
B) increase interest rates.
C) purchase stocks and bonds to stimulate the stock market.
D) print more U.S. dollars to increase the circulation of money.
E) coordinate a fiscal policy with the president to show that the federal government is unified, which encourages long-term planning and investment by businesses.

Question 22

An omnibus reconciliation bill:

A) controls the money supply and works to control interest rates.
B) requires that government taxing not exceed government spending.
C) is a single, comprehensive budget bill that requires a two-thirds majority in the House and Senate for passage.
D) is a single, comprehensive budget bill that cannot be filibustered in the Senate.
E) bridges the gap between the House budget and the Senate budget bills.

Question 23

A weak U.S. dollar makes U.S. goods ________, which, in theory, should ________ the U.S. trade deficit.

A) less expensive; reduce
B) more expensive; reduce
C) less expensive; increase
D) more expensive; increase
E) neither more expensive nor less expensive; have no effect on

Question 24

The ________ is the total accumulation of money borrowed by the government.

A) budget deficit
B) federal debt
C) trade deficit
D) budget surplus
E) federal balance sheet

Question 25

Which agency is housed in the executive branch and advises the president on economic policy making?

A) Federal Reserve Board
B) National Economic Council
C) Federal National Mortgage Association
D) American International Group
E) Chamber of Commerce

Question 26

In 2002, Congress decided not to honor the pay-as-you-go (PAYGO) procedure because:

A) Republicans, who opposed PAYGO, took control of the House.
B) George W. Bush vetoed the effort to renew PAYGO.
C) large funds were needed for the war on terror and the Iraq war.
D) Congress wanted to fast-track George W. Bush's tax cuts.
E) congressional Republicans argued that PAYGO was just another "big government" restriction on freedom.

Question 27

While debating the budget, Congress often seeks advice from an independent agency called the:

A) Congressional Reserve Board.
B) Congressional Budget Office.
C) Congressional Office of Management and Budget.
D) Congressional Budget Bureau.
E) National Budget Office.

Question 28

What does the gross domestic product (GDP) measure?

A) the annual difference between a country's imported goods and exported goods
B) a country's annual budget surplus
C) a country's economic output and activity
D) the country's total annual sales of manufactured goods
E) the goods consumed in the nation over a year

Question 29

One major critique of relying on the GDP to measure economic success is that:

A) it fails to capture a decline in well-being, as measured by sales of such products as alarms in our homes.
B) it is only able to measure economic activity in the manufacturing sector and does not include the rapidly growing service sector.
C) the statistic fails to tell us how the U.S. economy compares to the economies of
Other nations.
D) it relies too heavily on Wall Street activity.
E) the government frequently changes the formula for computing the GDP.

Question 30

Which government organization negotiates economic agreements with foreign countries on behalf of the president?

A) National Economic Council
B) Office of Management and Budget
C) United States Trade Representative
D) Council of Economic Advisers
E) Foreign Relations Council

Question 31

Inflation can become a major economic problem for all of the following reasons EXCEPT:

A) it makes it more difficult for people to repay their debts.
B) it reduces the value of savings.
C) it leads investors to demand high interest rates.
D) it erodes the purchasing power of some people.
E) it makes it more difficult for businesses to plan their long-term future.

Question 32

The Office of Management and Budget (OMB) plays an important role in the federal budget-making process because it:

A) manages the United States' current account.
B) provides the Federal Reserve with economic data.
C) is responsible for creating economic data for the entire executive branch.
D) is ultimately responsible for putting together the president's budget.
E) sets the official figures and costs in the federal budget once it becomes law.

Question 33

Why is the Securities and Exchange Commission important in a free-market economy?

A) It controls inflation by setting interest rates.
B) It regulates and controls monopolies and commerce.
C) It helps provide oversight to ensure transparent capital markets.
D) It ensures fair political competition without undue influence of money and donations.
E) It enforces laws that protect property rights, allowing businesses to have confidence that another firm will not steal their trade secrets and intellectual property.

Question 34

What was the result of the Budget and Accounting Act of 1921?

A) It created the Congressional Budget Office to produce independent economic analyses to assist Congress with the federal budget.
B) It restricts senators from using the filibuster on reconciliation bills.
C) It allowed the president to play a central role in the budget process.
D) It created the pay-as-you-go (PAYGO) requirement.
E) It curbed the president's power of impoundment.

Question 35

What does the Federal Deposit Insurance Corporation (FDIC) do?

A) advises the president on interest rates
B) insures all bank deposits up to $250,000
C) oversees and polices stock market trading
D) oversees and polices credit agencies
E) provides insurance for the purchase of bonds issued by the federal government

Question 36

What is it called when government spending is equal to its revenue?

A) budget making
B) balanced budget
C) budget surplus
D) budget stability
E) fiscal federalism

Question 37

The balance between a nation's receipts and its payments in international trade and investment is called a(n):

A) trade debt.
B) foreign deficit.
C) international deficit.
D) current account.
E) foreign trade balance.

Question 38

Large federal budget deficits are a concern for all of the following reasons EXCEPT:

A) large deficits create a financial burden on future generations.
B) large deficits crowd out private borrowing because there is a finite pool of dollars.
C) large deficits discourage people from spending money, which slows the economy.
D) large deficits require the government to make payments to bond holders rather than using money to meet public needs.
E) the interest payments owed on large deficits can take up a significant portion of the federal budget.

Question 39

To combat the problem of stagflation in the 1970s, President Richard Nixon implemented a policy of wage and price controls. While Nixon's actions ultimately failed, they illustrate a larger point, which is that:

A) the Federal Reserve should not interfere with market forces.
B) the goal of full employment is easier to accomplish than controlling inflation.
C) Republican presidents have a consistently poor record of controlling inflation.
D) there is almost nothing that a president can do to affect the national economy.
E) Republicans are generally more concerned about inflation than full employment.

Question 40

The Misery Index is based on:

A) a stagnant economy with inflation.
B) the sum of the inflation rate and the unemployment rate.
C) increases in the cost of living combined with slow growth in the nation's gross domestic product (GDP).
D) the nation's income inequality rate combined with various quality-of-life indicators.
E) a complicated formula that consists mainly of measures of consumer confidence and the public's optimism in the nation's economic future.

Question 41

Which of the following is an example of a progressive tax?

A) the income tax
B) the payroll tax
C) the excise tax
D) the gas tax
E) the cigarette tax

Question 42

The Federal Reserve Board has ________ members, who are appointed by the president.

A) three
B) five
C) seven
D) nine
E) fifteen

Question 43

The theory that lowering taxes will stimulate the economy because of increased investment and spending among the public is called:

A) Keynesian economics.
B) fiscal federalism.
C) economic nationalism.
D) supply-side economics.
E) central economic planning.

Question 44

What is an example of mandatory spending in the federal budget?

A) an entitlement program such as Social Security
B) national security expenditures for the Department of Homeland Security
C) funding for the national parks and forest systems
D) funding for the National Aeronautics and Space Administration (NASA)
E) funding for transportation and infrastructure

Question 45

A tax that takes a larger share of poor people's income than wealthy people's income is known as a ________ tax.

A) progressive
B) mandatory
C) discretionary
D) regressive
E) flat

Question 46

During the Reagan presidency, taxes and spending fell as a share of the overall economy. What was the result?

A) budget surpluses that gradually helped pay off the federal debt
B) a balanced federal budget by the end of Reagan's presidency
C) no major changes in the nation's annual deficits or overall debt
D) budget deficits during Reagan's first term but balanced budgets by Reagan's second term that helped reduce the federal debt
E) continued budget deficits and a significant increase in the nation's federal debt

Question 47

Taxing and spending decisions are known as ________ policy.

A) punitive
B) mandatory
C) progressive
D) monetary
E) fiscal

Question 48

During the nation's recent economic crisis, what would a proponent of Keynesian economics have done?

A) supported the government's entire $787 billion stimulus plan of tax cuts and government spending
B) supported the stimulus plan's tax cuts but not the increases in government spending
C) opposed the stimulus plan's tax cuts but supported the increases in government spending
D) opposed the government's entire stimulus plan because it added to the federal debt
E) supported a government stimulus plan of spending increases and tax cuts at the state level but not at the national level, because state governments tend to be more fiscally responsible

Question 49

What is a major criticism of the Fed?

A) Its policies are designed to maximize GDP rather than to improve the overall quality of life for the public.
B) Its policies undermine the legislative branch's ability to affect budgetary policy.
C) It often acts in ways that are politically popular rather than in ways that are
Fiscally sound.
D) It is too concerned with keeping interest rates low when it should be more concerned about keeping inflation low.
E) The Fed can make decisions that damage the economy, and voters have little recourse to hold members of the Fed accountable.

Question 50

Which of the following is a responsibility of the Treasury Department?

A) to prepare the president's budget
B) to provide Congress with economic data
C) to make changes to the U.S. tax code
D) to collect taxes, duties, and money due to the United States
E) to make recommendations to the Justice Department about prosecuting individuals who may have knowingly violated federal tax laws

Question 51

Which agency works with the president to compose the nation's annual budget?

A) Federal Reserve Bank
B) National Budget Office
C) Federal Council on Budget Affairs
D) Office of Management and Budget
E) Internal Revenue Service

Question 52

Decisions made by the Federal Reserve System (or the Fed) are:

A) politically influenced by the president.
B) politically influenced by Congress.
C) politically influenced by the National Economic Council.
D) politically influenced by various agencies within the federal bureaucracy.
E) not politically influenced because the agency is independent.

Question 53

All of the following statements about the Fed are true EXCEPT:

A) the Fed's primary directive is to keep interest rates low.
B) the Fed's decisions are not subject to presidential review.
C) the Fed's decisions are not subject to congressional review.
D) unlike other presidential appointees, members of the Fed can only be removed "for cause."
E) the Fed can create its own money.

Question 54

The chair of the Federal Reserve System serves:

A) a four-year term that can be renewed by the president and the Senate.
B) an eight-year term that can be renewed by the president and Senate.
C) a single fourteen-year term.
D) an unlimited term that lasts until the chair steps down.
E) a term that lasts until the end of the term of the president who appointed the Fed chair.

Question 55

Economist Arthur Laffer, who developed the Laffer curve, believed that if taxes are raised drastically:

A) people will work less because too much of their income will go to the government.
B) people will work more because they need to offset money going to the government.
C) people will demand more from government for their hard work, making government bigger and even more expensive.
D) more people will become unemployed and collect unemployment benefits.
E) the government would raise less money over time and ultimately go bankrupt because educated and skilled workers would leave the country for better opportunities elsewhere.

Question 56

Countercyclical taxing and spending policy is known as:

A) Keynesian economics.
B) fiscal federalism.
C) economic nationalism.
D) supply-side economics.
E) central economic planning.

Question 57

Which of the following constitutes the highest portion of expenditures in the national budget?

A) discretionary defense spending
B) Social Security and Medicare combined
C) foreign aid
D) transportation
E) net interest paid on the national debt

Question 58

During the nation's recent economic crisis, what would a proponent of supply-side economics have done?

A) supported the government's entire $787 billion stimulus plan of tax cuts and government spending
B) supported the stimulus plan's tax cuts but not the increases in government spending
C) opposed the stimulus plan's tax cuts but supported the increases in government spending
D) opposed the government's entire stimulus plan because it added to the federal debt
E) supported a government stimulus plan of spending increases and tax cuts at the state level but not at the national level, because state governments tend to be more fiscally responsible

Question 59

Which of the following is the most significant source of revenue for the federal government?

A) payroll taxes
B) corporate income taxes
C) excise taxes
D) individual income taxes
E) the gas tax

Question 60

________ was the Federal Reserve chairman during the 2008-2009 banking crisis.

A) Alan Greenspan
B) Ben Bernanke
C) Paul Volcker
D) Alexander Hamilton
E) Janet Yellen

Question 61

Since 1933, money is based on:

A) gold.
B) gold, silver, and other precious metals.
C) certificates of deposit.
D) the assets held by the Federal Reserve System.
E) the trust and confidence in the banking system.

Question 62

Regulatory "capture" refers to instances in which:

A) politicians regulate the economy in reaction to market failures.
B) politicians do not consider or serve the public interest when setting up regulations.
C) bureaucratic agencies are controlled by the industries they directly affect.
D) politicians increase regulations on exports so domestic products can flourish.
E) regulations are inevitable as capitalist economies grow.

Question 63

If the Fed wanted to put downward pressure on the FFR, it would likely:

A) sell government bonds to banks.
B) purchase government bonds from banks.
C) increase the reserve requirement.
D) increase the discount rate.
E) make a request to Congress to reduce government spending.

Question 64

What is the relationship between the relative strength of the dollar and imports and exports from the country?

A) A stronger dollar means more imports and more exports.
B) A stronger dollar means less imports and less exports.
C) A stronger dollar means more imports and less exports.
D) A stronger dollar means less imports and more exports.
E) There is no direct relationship.

Question 65

Which of the following is an example of a negative externality?

A) power plants producing pollution as a side effect of energy production
B) Apple selling computers to Chinese consumers
C) the Fed buying assets to try to encourage the American economy out of a recession
D) investing in schools so that citizens are more productive
E) balancing the budget every year

Question 66

Market failures sometimes lead to social regulation, particularly when the costs of a firm's behavior are not entirely borne by the firm but are passed on to other people. These failures are known as:

A) the free rider problem.
B) negative externalities.
C) regulatory conundrums.
D) negative market shares.
E) the free market paradox.

Question 67

A "natural" monopoly occurs because:

A) monopolies are a natural consequence in free-market capitalism.
B) one company offers a product that is clearly superior to its competitors.
C) mergers occur between rival companies until only one remains.
D) one company corners the market by buying up companies in other industries that control the means of production.
E) the costs are so high to enter a specific business that only one company in the market can be profitable.

Question 68

The reserve requirement requires:

A) the Federal Reserve to set the interest rate for short-term loans.
B) the federal government to insure all bank deposits of up to $250,000.
C) the Federal Reserve to hold a minimum amount of gold and precious metals.
D) the Treasury Department to reserve a portion of U.S. currency in the event of a national emergency.
E) banks to have a certain amount of money on hand to back up their assets.

Question 69

The specific interest rate that banks pay each other for emergency overnight loans is called a(n):

A) emergency loan rate.
B) overnight loan rate.
C) discount rate.
D) federal funds rate.
E) federal reserve rate.

Question 70

When the flow of money is tight, the price of short-term loans will be bid ________ and the federal fund rate (FFR) will ________.

A) up; rise
B) down; rise
C) up; fall
D) down; fall
E) up in good economic times and down in difficult economic times; vary depending on market forces

Question 71

According to the monetarist theory of macroeconomic policy:

A) prices drop when there is too much money chasing too few goods.
B) inflation should be avoided at all costs for the overall good of the economy.
C) interest rates should be kept low at all times to encourage investment.
D) a recession can result when there isn't enough money in the system.
E) the government should avoid interfering in the free market as much as possible.

Question 72

The specific interest rate that banks pay to the Federal Reserve Bank for short-term loans is called a(n):

A) short-term rate.
B) emergency loan rate.
C) discount rate.
D) federal funds rate.
E) federal reserve rate.

Question 73

What is a common criticism of regulation?

A) Regulations limit job growth.
B) Regulation gives businesses the incentive to focus on profits only.
C) Most regulations are highly unpopular with the American public.
D) Regulations are written in complex language.
E) Research has shown that regulations have generally failed to protect the public from the dangers they claim to prevent.

Question 74

The logic behind lowering interest rates is to:

A) decrease the amount of money being borrowed.
B) lower inflation.
C) increase the amount of money being borrowed.
D) encourage people to buy government bonds.
E) control the profits that banks make.

Question 75

Why did the Justice Department drop its 1998 antitrust lawsuit against Microsoft?

A) The department could no longer afford to continue the lawsuit.
B) The Supreme Court denied their appeals request.
C) A new president was elected and he decided not to press the case.
D) Congress put pressure on the department to drop the suit.
E) Public opinion was overwhelmingly behind Microsoft.

Question 76

If the Fed provided additional credit when the economy was expanding and reduced credit when businesses were not expanding, the result would be:

A) low interest rates and increased national savings.
B) to cancel out any positive or negative effects on the overall economy.
C) the "flooding" of money in the system, stimulating spending and job creation.
D) the worsening of the economy, because it would choke off the supply of money when it was needed most.
E) growth in GDP, because the Fed would be acting in unison with the general direction of the economy.

Question 77

Which of the following is most likely to influence trade policy and balance?

A) strength of the dollar compared to other currencies
B) the federal budget deficit
C) the national debt
D) interest rates
E) the status of the government-whether divided or unified

Question 78

Why are monopolies a problem sometimes?

A) They present a barrier to free trade between nations.
B) They are typically wasteful and inefficient with their resources.
C) They force people to buy products they do not want.
D) A business can raise prices without fear of losing customers to competitors.
E) Banks are less likely to make loans and free up capital for investment.

Question 79

What is a negative externality?

A) a situation in which there are positive side effects of an action that benefit society
B) a situation in which the agency responsible for regulating an industry is too sympathetic to the group it is supposed to regulate
C) a situation in which the country is spending more every year than it is taking in from revenue
D) a situation in which the total imports and foreign investment in America is greater than the total of exports and American investment abroad
E) a situation in which a firm produces more of an unwanted good than is socially desirable

Question 80

The Sherman Antitrust Act was passed in 1890 to break up which corporate monopoly?

A) oil
B) coal
C) steel
D) railroad
E) telegraph