Deck 15: Economic Policy

Question 1

Government regulation has a limited impact on the economy.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Keynesian economic theorists 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.

Answer 3

True

Question 4

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 5

Payroll taxes are regressive.

Question 6

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 7

What did the Employment Act of 1946 do?

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

Question 8

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

Question 9

Foreign investors now own about 85 percent of the publicly owned government debt.

Question 10

Economists consider the natural rate of unemployment to be around ________ percent.

A) 5 to 5.5
C) 17 to 17.5
B) 12 to 12.5
D) 33 to 33.5

Question 11

The U.S. economy lost 8.4 million jobs in 2008-2009.

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Stagflation involves rising prices and high unemployment.

Question 20

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

A) economic depression
C) economic regression
B) economic hardship
D) economic setback

Question 21

While debating the budget, members of Congress often seek advice from an independent agency called the ________.

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

Question 22

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 restricted 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.

Question 23

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

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

Question 24

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.

Question 25

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.

Question 26

Which one of the following statements is accurate?

A) Budget deficits are cumulative figures over time.
B) Budget deficits are figures in a given fiscal year.
C) The national debt is a figure in a given fiscal year.
D) Borrowing money over time reduces the national debt.

Question 27

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 economic output and activity
C) the country's total annual sales of manufactured goods
D) the goods consumed in the nation over a year

Question 28

The balance between a nation's receipts and its payments in international trade and investment is called ________.

A) a trade debt
C) the current account
B) a foreign deficit
D) the foreign trade balance

Question 29

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

A) National Economic Council
B) Federal Reserve Board
C) Federal National Mortgage Association
D) Budget Reconciliation Committee

Question 30

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.

Question 31

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

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

Question 32

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

A) the Democrats opposed it.
B) the federal budget was already in surplus mode.
C) large funds were needed for the war on terror and the Iraq war.
D) President Bush wanted to raise taxes on federal personal income.

Question 33

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

A) It regulates and controls monopolies and commerce.
B) It helps provide oversight to ensure transparent capital markets.
C) It ensures fair political competition without undue influence of money and donations.
D) 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

Which one of the following statements is accurate?

A) Members of Congress first obtained the institutional capacity to deal with the president in an equal manner in 1921.
B) Members of Congress first obtained the institutional capacity to deal with the president in an equal manner in 1974.
C) Members of Congress no longer have the power of the purse.
D) The president is no longer a relevant player in budgetary matters.

Question 35

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) Foreign Relations Council

Question 36

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

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

Question 37

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

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

Question 38

Which one of the following statements is accurate?

A) There is more income inequality today in Europe than 100 years ago.
B) There is more income inequality today in the United States than in Europe.
C) The top 10 percent of wage earners today in Europe control 10 percent of the wealth.
D) The top 10 percent of wage earners today in the United States control 50 percent of the wealth.

Question 39

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.

Question 40

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

A) helps to promote a secure banking system
B) advises the president on interest rates
C) oversees and polices stock market trading
D) oversees and polices credit agencies

Question 41

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

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

Question 42

Which one 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

Question 43

Since 1933, money is based on ________.

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

Question 44

Which one of the following statements is accurate?

A) The proportion of revenue received from payroll taxes is much lower today than in the early 1960s
B) The proportion of revenue received from corporate income taxes is much less today than in the early 1960s.
C) The proportion of spending on the net interest on the debt is much higher today than it was in the early 1960s.
D) The proportion of spending on Social Security is lower today than in the early 1960s.

Question 45

Countercyclical taxing and spending policy is known as ________.

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

Question 46

Taxing and spending decisions are known as ________ policy.

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

Question 47

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

Question 48

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

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

Question 49

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

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

Question 50

A ________ tax takes a larger share of poor people's income than the income of wealthy people.

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

Question 51

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.

Question 52

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) continued budget deficits and a significant increase in the nation's federal debt

Question 53

What is a major criticism of the Fed?

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

Question 54

The Federal Reserve System was created in ________.

A) 1789
C) 1913
B) 1882
D) 1934

Question 55

The reserve requirement requires

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

Question 56

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 is not enough money in the system.

Question 57

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

A) 4
C) 13
B) 7
D) 22

Question 58

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.

Question 59

Which one of the following is an example of mandatory spending in the federal budget?

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

Question 60

The specific interest rate that banks pay to the Federal Reserve Bank for short-term loans is called ________.

A) a short-term rate
C) an emergency loan rate
B) a discount rate
D) a federal reserve rate

Question 61

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.

Question 62

A trade deficit is determined by measuring the difference between a nation's ________ and its ________.

A) revenue; spending
C) imports; exports
B) inflation rate; unemployment rate
D) foreign loans; foreign debt

Question 63

Which one of the following positive trade-offs do people usually associate with free trade?

A) lower interest rates
B) stock market increase
C) lower prices on consumer goods
D) the need for less border security

Question 64

In recent years, what has been the status of the U.S. trade balance?

A) a record-setting surplus
B) a record-setting deficit
C) roughly equal
D) equalized through government bailouts

Question 65

A natural monopoly occurs because

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

Question 66

Under a protectionist policy of importing and exporting goods, the United States would

A) strengthen the value of the U.S. dollar.
B) use federal law enforcement officials to ensure national security as products enter the country.
C) use federal regulatory agencies to secure the safety of imported goods such as food.
D) decrease the number of imports by implementing trade sanctions, tariffs, and quotas.

Question 67

How did the chair of the Fed, Ben Bernanke, respond to economic crisis in 2008?

A) He did not advocate any policy changes.
B) He responded by "flooding the street with money."
C) He responded by increasing interest rates significantly.
D) He encouraged members of Congress to return to the gold standard.

Question 68

What is a negative externality?

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

Question 69

How is America's trade deficit primarily financed?

A) corporate taxes
C) overseas borrowing
B) public purchases of U.S. bonds
D) excise taxes

Question 70

If the Fed governors wanted to put downward pressure on the FFR, they would likely

A) sell government bonds to banks.
B) purchase government bonds from banks.
C) increase the reserve requirement.
D) increase the discount rate.

Question 71

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.

Question 72

Which one 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

Question 73

The specific interest rate that banks pay each other for emergency overnight loans is called ________.

A) an emergency loan rate
C) a federal reserve rate
B) an overnight loan rate
D) a federal funds rate

Question 74

Regarding trade policy, Democrats generally represent ________, while Republicans generally represent ________.

A) capital; free trade
C) free trade; Wall Street
B) labor; capital
D) tariffs; quotas

Question 75

Which one of the following negative trade-offs do many people usually associate with free trade?

A) higher interest rates
B) stock market decline
C) increased prices on consumer goods
D) reduction in American jobs

Question 76

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
C) negative market shares
B) negative externalities
D) the free market paradox

Question 77

Why did the Justice Department drop the 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) Public opinion was overwhelmingly behind Microsoft.

Question 78

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.

Question 79

The Sherman Antitrust Act led to the dissolution of the ________ monopoly.

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

Question 80

Which one 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