Deck 9: Economic Policy

Question 1

In the 1950s, at the peak of the Cold War, U.S. military expenditures were approximately ______________ of all federal expenditures.

A) 65 percent
B) 50 percent
C) 35 percent
D) 20 percent
E) 5 percent

Answer 1

A

Question 2

The federal government raises most of its revenue from ______________.

A) individual income taxes
B) sales taxes
C) property taxes
D) corporate taxes
E) estate taxes

Answer 2

A

Question 3

All of the following are true about the United States except

A) the United States employs more public sector employees, as a percentage of total employment, than any other country.
B) the U.S. public sector is small compared to other countries.
C) compared to other advanced economies, U.S. firms are subject to fewer and less invasive government regulations.
D) in no other advanced economies does the absence of government regulations give employers so much power to fire or lay off workers and leave them unprotected from summary job loss.
E) the U.S. government provides less generous child care services than many other rich democracies.

Answer 3

A

Question 4

If income increases as tax rates decline, it is a ______________ tax system.

A) flat
B) progressive
C) regressive
D) excise
E) distributive burden tax system

Question 5

Which of the following statements is true regarding capital gains?

A) Capital gains are profits from investments.
B) Capital gains are taxed at the same rate as ordinary income such as wages and salary.
C) Capital gains are taxed at a lower rate than ordinary income.
D) Capital gains have always been taxed at lower rates than ordinary income.
E) Most rich people pay the 35 percent capital gains tax since much of their income is derived from investments.

Question 6

As a percentage of GDP, total government receipts in the United States are ______________ those of most other industrialized countries.

A) smaller than
B) about the same as
C) about 20 percent greater than
D) about 50 percent greater than
E) so difficult to compute that they cannot be compared with

Question 7

Approximately what percentage of total government expenditures in the United States are expenditures by the federal government (as opposed to those of state and local governments)?

A) 16 percent
B) 33 percent
C) 50 percent
D) 67 percent
E) 90 percent

Question 8

Federal taxes on the sale of alcohol, tobacco, and gasoline are examples of ______________ taxes.

A) progressive
B) excise
C) income
D) estate
E) import

Question 9

Fiscal policy mainly involves

A) setting interest rates.
B) government decisions about the total amount of revenue and spending.
C) government decisions about spending but not about taxes.
D) government decisions about whether to impose tariffs on imports from other countries.
E) government regulation of the credit card industry.

Question 10

A scenario when the government spends more than it collects in taxes is called ______________.

A) inflation
B) deflation
C) a budget surplus
D) a budget deficit
E) the national debt

Question 11

Between 1950 and 2006, the percentage of all tax revenues coming from corporate income taxes ______________, and the percentage of all tax revenues coming from social insurance and retirement ______________.

A) increased . . . increased
B) increased . . . decreased
C) decreased . . . increased
D) decreased . . . decreased
E) stayed about the same . . . decreased

Question 12

In 2010, the revenue of all U.S. governments (federal, state, and local) totaled approximately

A) $36 million.
B) $400 million.
C) $4 billion.
D) $360 billion.
E) $3.6 trillion.

Question 13

According to the text, state and local governments' revenues depend primarily on

A) corporate taxes.
B) import taxes.
C) sales and property taxes.
D) individual income and sales taxes.
E) corporate and property taxes.

Question 14

According to the text, all of the following statements regarding deficits are true except

A) deficits are not necessarily bad; at times, they are even appropriate.
B) when the economy is in recession, deficits stimulate commerce that puts people back to work.
C) some government spending yields a high social and economic return that makes borrowing money worthwhile.
D) whether deficits are good or bad depends on the state of the economy as well as on how wisely the money is invested.
E) deficits are always bad. They reflect government's profligate spending.

Question 15

According to the text, the sales tax is generally considered a ______________.

A) progressive tax
B) regressive tax
C) tax on income
D) import tax
E) fair share tax

Question 16

Which of the following statements regarding U.S. corporate taxes is false?

A) The federal tax rate for big corporations is officially 35 percent of profits.
B) The federal corporate tax rate in the United States is one of the highest in Western democracies.
C) Few corporations actually pay the 35 percent corporate tax rate.
D) Most corporations pay a corporate tax rate of 25 percent or less, one of the lowest rates among Western democracies.
E) Federal corporate taxes have increased since the 1950s.

Question 17

When corporate taxes decrease and payroll taxes, such as the Social Security tax, increase, what kind of tax system is represented?

A) progressive tax system
B) regressive tax system
C) distributive burden tax system
D) fair share tax system
E) cooperative tax system

Question 18

When tax rates increase as people's income rises, so that people who earn more pay a higher proportion of their income in taxes, it is a ______________.

A) flat tax system
B) progressive tax system
C) regressive tax system
D) excise tax system
E) fair share tax system

Question 19

All of the following statements regarding the budget process are true except

A) it involves partisan conflict.
B) it involves institutional conflict between the legislative and executive branches.
C) it involves interest-group conflict among an immense array of pressure groups.
D) it is largely a benign administrative exercise devoid of the politics of power.
E) it is an intensely political affair.

Question 20

Fiscal policy is made by

A) the Federal Reserve and Congress.
B) the Federal Reserve.
C) only the President.
D) the President and Congress.
E) the Supreme Court and Federal Reserve.

Question 21

"Mandatory" spending

A) includes entitlement programs but not interest on the national debt.
B) includes entitlement programs and interest on the national debt.
C) does not include entitlement programs but does include interest on the national debt.
D) includes neither entitlement programs nor interest on the national debt.
E) is the term used by political scientists for all money that the government spends.

Question 22

Monetary policy is made by

A) the Federal Reserve and Congress.
B) the Federal Reserve.
C) the President.
D) the President and Congress.
E) the Supreme Court and Federal Reserve.

Question 23

According to the text, the Federal Reserve is most responsive and accountable to

A) the president.
B) the Senate Banking Committee.
C) the House Appropriations Committee.
D) the treasurers of the fifty states.
E) bankers.

Question 24

In the 1950s, welfare state expenditures were approximately ______________ of all federal expenditures.

A) 15 percent
B) 35 percent
C) 65 percent
D) 85 percent
E) 95 percent

Question 25

In 2010, defense expenditures were approximately ______________ of all federal expenditures.

A) 65 percent
B) 50 percent
C) 35 percent
D) 20 percent
E) 5 percent

Question 26

Of the following, which is not generally considered a government regulatory agency?

A) Interstate Commerce Commission
B) Food and Drug Administration
C) Securities and Exchange Commission
D) Occupational Safety and Health Administration
E) House of Representatives Appropriations Committee

Question 27

According to the text, welfare state spending includes federal expenses for all of the following except

A) Social Security.
B) health care.
C) interest on the debt.
D) veterans' benefits.
E) education.

Question 28

Approximately what proportion of all "discretionary" federal spending is military spending?

A) one-sixth
B) one-third
C) one-half
D) two-thirds
E) five-sixths

Question 29

According to the text, under Federal Reserve chair Ben Bernanke, which of the following did not happen?

A) The Fed was more candid in explaining its policies.
B) The Fed was much more aggressive in offering loans to and buying stock in failing businesses.
C) The Fed blurred the lines between fiscal and monetary policy.
D) The Fed resisted more regulation of the financial sector.
E) The Fed was more tolerant of dissent within Federal Open Market Committee (FOMC) meetings.

Question 30

In 2010, welfare state expenditures were approximately ______________ of all federal expenditures.

A) 19 percent
B) 29 percent
C) 99 percent
D) 59 percent
E) 69 percent

Question 31

Monetary policy involves

A) setting interest rates.
B) government decisions about taxes but not about spending.
C) government decisions about taxing and spending.
D) government decisions about spending but not about taxes.
E) government decisions about the number and amount of savings bonds that will be issued.

Question 32

The largest portion of the federal government's discretionary spending is allotted to

A) Social Security.
B) education.
C) transportation.
D) public housing.
E) defense.

Question 33

Approximately what proportion of all federal spending is mandatory?

A) one-sixth
B) one-third
C) one-half
D) two-thirds
E) five-sixths

Question 34

The Federal Reserve Board

A) is elected by a majority vote of the governors of the fifty states.
B) was created shortly after World War II in an effort to prevent inflation.
C) will lower interest rates if it wants to slow down the economy.
D) has, according to the text, less political independence from the president and Congress than any other government agency.
E) has, according to the text, been insulated from democratic accountability since its creation.

Question 35

In saying that the creation of regulatory agencies often led to the opposite of what reformers intended, the text primarily means

A) these agencies were much too aggressive.
B) these agencies became too heavily embroiled in partisan politics.
C) the Supreme Court declared most of these agencies to be unconstitutional.
D) Congress refused to authorize funding for these agencies.
E) these agencies became too responsive to the needs of the industries they were supposed to regulate.

Question 36

When the Federal Reserve bailed out financial institutions such as Citigroup and Bank of America, it did so, according to the text, primarily because

A) President Bush ordered it to do so.
B) President Obama ordered it to do so.
C) Federal Reserve officials depend on such financial institutions for campaign contributions.
D) the Federal Reserve views the needs of the broader economy through the needs of the banking community.
E) a law pushed through Congress required the Federal Reserve to bail out these institutions.

Question 37

Alan Greenspan

A) was Secretary of the Treasury during the administration of President Bill Clinton.
B) was Secretary of the Treasury during the administration of President George W. Bush.
C) was chair of the Federal Reserve from 1987 to 2006.
D) denied in Congressional testimony that there were any flaws in his understanding of the financial world.
E) managed, despite his importance to the U.S. economy, never to testify before Congress.

Question 38

The authority of the federal government to issue economic regulations stems primarily from what the Constitution says about

A) check and balances.
B) the protection of private property.
C) the powers of the President.
D) the powers of the Supreme Court.
E) interstate commerce.

Question 39

The Federal Reserve Bank does all of the following except

A) hold elections for its board of governors every fourteen years.
B) determine the rate of interest to be paid by U.S. banks.
C) buy and sell government bonds.
D) set the reserve rate that banks must hold on a deposit.
E) engineer mergers of failing banks with healthy banks.

Question 40

The power of the federal government to issue economic regulations was largely dormant until approximately

A) 1890.
B) 1920.
C) 1950.
D) 1980.
E) 2000.

Question 41

What is the difference between fiscal and monetary policy, and which parts of the federal government are responsible for making each of these policies?

Question 42

Explain the ways in which the federal government uses taxation to regulate behavior. Provide examples to illustrate your claim.

Question 43

What are the main ways in which the composition of the federal government's tax revenues has changed over the past half-century? What are the main ways in which federal outlays for the military and the social welfare state have changed over the past half-century?

Question 44

The text argues that setting interest rates is not merely a "technical matter of managing the economy but a political one." Summarize the authors' arguments about the political nature of setting interest rates.

Question 45

In discussing the Securities and Exchange Commission (SEC), the text makes all of the following statements except

A) the SEC was created to protect investors against stock market fraud.
B) the SEC was created during the 1930s.
C) many SEC officials work for Wall Street before or after working for the SEC.
D) the SEC alerted the public to Bernie Madoff's fraudulent schemes as soon as the SEC was tipped off about them.
E) the SEC believes that preserving confidence in the stock market is essential, even if that confidence may be misguided.

Question 46

What are the main differences between social and economic regulation? What are the main similarities between them? Give examples of each kind of regulation.

Question 47

In discussing regulatory agencies, the text states that "watchdogs for the public had become guard dogs for industry." What does the book mean by that statement? Give some examples and evidence that the book provides in support of the statement.

Question 48

Summarize the measures that the Federal Reserve took to deal with the financial and economic crisis that erupted in 2008.

Question 49

Describe the structure of the Federal Reserve, its operation, and the policy tools it uses to influence the economy.