Deck 18: Economic Policy

Question 1

The campaign staff of ________ was notable for the quip "It's the economy, stupid!"

A) George W. Bush
B) Ronald Reagan
C) George H. W. Bush
D) Franklin Roosevelt
E) Bill Clinton

Answer 1

E

Question 2

According to the monetarist theory, inflation occurs when

A) government holds down interest rates.
B) there is too little money, and interest rates are low.
C) demand exceeds supply.
D) the budget deficit exceeds the gross national product (GNP).
E) the government prints too much money.

Answer 2

E

Question 3

In general, conservative economists tend to support

A) monetarism.
B) Keynesianism.
C) planning.
D) supply-side economics.
E) both A and D.

Answer 3

E

Question 4

Lower-income people tend to vote

A) Democratic.
B) Republican.
C) independent.
D) Socialist.
E) Libertarian.

Question 5

John Maynard Keynes held that

A) the market will not automatically operate at a full-employment, low-inflation level.
B) the health of the market depends on what fraction of personal income is spent or saved.
C) too much savings can lead to unemployment.
D) too much spending will lead to shortages and inflations.
E) all of the above.

Question 6

The total national debt is around $____ trillion.

A) 3
B) 5
C) 14
D) 45
E) 112

Question 7

A twentieth-century example of government use of money to influence elections was

A) increasing the size of the military in election years.
B) increasing foreign aid in election years.
C) increasing Social Security benefits in election years.
D) reducing subsidies for mortgage insurance in election years.
E) mobilizing troops in election years.

Question 8

A nineteenth-century example of government use of money to influence elections was the practice of

A) giving government jobs to the party faithful.
B) increasing the size of the military.
C) levying an income tax.
D) encouraging a policy of manifest destiny.
E) decreasing the size of the Post Office.

Question 9

As a group, low-income people tend to be most concerned with

A) inflation.
B) education.
C) economic drift.
D) health.
E) employment.

Question 10

The authors suggest that a major cause of the financial crash of 2008 was

A) the private economy.
B) capitalism.
C) the free market.
D) government.
E) greed on Wall Street.

Question 11

The health of the American economy creates

A) majoritarian politics.
B) interest group politics.
C) client politics.
D) entrepreneurial politics.
E) egalitarian politics.

Question 12

Fannie Mae and Freddie Mac issued subprime mortgages because

A) of a desire to maximize profit on the backs of the middle class.
B) the markets suggested that the result would be a huge profit margin.
C) private investors were favorable to such mortgages.
D) wealthy clients benefited directly.
E) they were instructed to do so by politicians in Washington.

Question 13

Policies aimed at improving the economy as a whole are examples of

A) majoritarian politics.
B) interest group politics.
C) client politics.
D) entrepreneurial politics.
E) reciprocal politics.

Question 14

The text suggests that economics played a major role in the defeat of

A) Gerald Ford in 1976.
B) George H. W. Bush in 1992.
C) Jimmy Carter in 1980.
D) all of the above.
E) none of the above.

Question 15

The pocketbook issue tends to preoccupy politicians most

A) early in a presidential term.
B) toward the end of a session of Congress.
C) when presidential popularity is at its peak.
D) when the economy is doing poorly.
E) just before elections.

Question 16

Under federal rules, banks must have at least $1 of their own capital for every $_____ of deposits they accept.

A) 2
B) 6
C) 12
D) 100
E) 1,000

Question 17

"Subprime" mortgages were given to people who

A) were receiving their first home loan.
B) had low credit ratings and put up a small (if any) deposit.
C) were receiving loans on homes of less than $100,000.
D) had declared bankruptcy sometime in the previous six months.
E) had invested in junk bonds in the 1980s.

Question 18

Monetarists recommend that the government increase the money supply at a rate equal to the

A) growth in credit.
B) growth in unemployment.
C) growth in productivity.
D) drop in the rate of inflation.
E) drop in wages.

Question 19

As a group, higher-income people tend to be most concerned with

A) inflation.
B) education.
C) employment.
D) health.
E) economic drift.

Question 20

When voting behavior and economic conditions correlate at the national but not at the individual level, it can be said that the voters are

A) heliocentric, or earth conscious.
B) sociopathic, or self-absorbed.
C) homeopathic, or group related.
D) socialistic, or ideology driven.
E) sociotropic, or other regarding.

Question 21

The machinery for making economic policy decisions is

A) complex and not under the president's full control.
B) simple but not under the president's full control.
C) complex but fully controlled by the president.
D) simple and fully controlled by the president.
E) complex but fully controlled by the president and party leaders.

Question 22

The OMB is partly a nonpartisan, expert agency that analyzes budget patterns and partly a(n)

A) partisan agency that carries out the president's wishes.
B) detached organization that promotes the national interest.
C) agency that supervises the Budget Reform Act.
D) agency subordinate to the CEA.
E) organization that checks presidential decision making.

Question 23

An economist proposes that the best remedy for a decline in productivity is to lower taxes, which would increase investment and ultimately increase productivity. This approach is called

A) Keynesian economics.
B) monetarist economics.
C) economic planning.
D) supply-side economics.
E) credit-based economics.

Question 24

An economist proposes that the best remedy for a decline in productivity is to lower taxes. Why should this approach increase productivity?

A) Because it would direct government investment toward those segments of the economy that generate the most revenues
B) Because it would increase consumer confidence and lower demand for goods
C) Because it would decrease demand, which in turn would reduce the budget deficit and lower inflation
D) Because it would increase economic growth by reducing the amount of money chasing after a scarcity of goods
E) Because it would increase investment, which would in turn increase productivity and tax revenues

Question 25

Typically, the economic adviser with the closest link to the financial community is the

A) chairperson of the CEA.
B) secretary of the Treasury.
C) director of the OMB.
D) chairperson of the Fed.
E) deputy director of the OMB.

Question 26

The executive agency that ensures that other agencies' legislative proposals are compatible with the president's program is the

A) CEA.
B) Treasury Department.
C) OMB.
D) Fed.
E) NSA.

Question 27

One study found ________ separate government bureaus were engaged in making economic policy.

A) fewer than five
B) fewer than ten
C) approximately thirty
D) close to seventy-five
E) more than one hundred

Question 28

John Kenneth Galbraith urged that as a solution to inflation,

A) the government cut taxes.
B) the private sector be allowed to adjust itself.
C) the money supply be held in check.
D) the government control prices and wages.
E) government restrictions be lifted and taxes increased.

Question 29

In Lochner v. New York, the Supreme Court famously struck down a law that limited the number of hours that may be worked by

A) baseball players.
B) coal miners.
C) police officers.
D) bakers.
E) milk delivery workers.

Question 30

The first economic stimulus (of February 2008) featured

A) billions of dollars given to Americans in checks of $600.
B) loans to Chrysler and General Motors.
C) payments to mortgage owners.
D) payments for unemployment and health insurance.
E) the buyout of shares in banks and insurance companies.

Question 31

In economic policy deliberations, the secretary of the Treasury is expected to argue the point of view of the

A) financial community.
B) president.
C) Treasury Department.
D) country in general.
E) industrial elite.

Question 32

When the Troubled Asset Relief Program (TARP) program began investing in ________, some Americans argued that there was potential wisdom in the planning approach.

A) the airline industry
B) banks
C) coal
D) steel
E) rubber

Question 33

Supply-side economists advocate that government

A) control wages more than prices.
B) control prices more than wages.
C) control both prices and wages.
D) do all of the above.
E) interfere less in the economy.

Question 34

Outside the troika of presidential economic advisers, the most important agency involved in making economic policy is the

A) General Accounting Office (GAO).
B) Environmental Protection Agency (EPA).
C) Federal Reserve Board (Fed).
D) Office of Management and Budget (OMB).
E) Council of Foreign Relations (CFR).

Question 35

Keynes would insist that there is no need for the government to

A) create public works programs.
B) cut federal expenditures.
C) increase taxes.
D) pump money into the economy.
E) balance the budget on a year-to-year basis.

Question 36

Which of the following statements concerning the Federal Reserve Board is incorrect?

A) Its members are confirmed by the Senate.
B) It has seven members.
C) Members serve fourteen-year terms.
D) No member has ever been removed for cause.
E) The chairman serves for life.

Question 37

The second economic stimulus (of February 2009) featured

A) tax cuts for those earning less than $75,000.
B) tax cuts for some businesses.
C) payments for unemployment and insurance companies.
D) grants to states for Medicaid, highways, and schools.
E) all of the above.

Question 38

The executive officer who provides estimates of government revenues and who recommends tax changes is the

A) chairperson of the CEA.
B) secretary of the Treasury.
C) director of the OMB.
D) chairperson of the Fed.
E) deputy director of the OMB.

Question 39

The text suggests that in theory and in practice, the Fed is independent

A) of the president.
B) of Congress.
C) of both the president and Congress.
D) of the president, but not Congress.
E) of Congress, but not the president.

Question 40

The executive agency in charge of economic forecasting and preparing the president's annual economic report to Congress is the

A) CEA.
B) Treasury Department.
C) OMB.
D) Federal Reserve Board (Fed).
E) NSA.

Question 41

The Federal Reserve Board implements its monetary policy by

A) buying federal government securities bonds.
B) selling federal government securities bonds.
C) regulating the amount of money that a member bank must keep on hand as reserves.
D) changing the interest rates charged by banks.
E) doing all of the above.

Question 42

The fiscal year goes from

A) June 3 to November 15.
B) March 16 to September 29.
C) October 1 to September 30.
D) January 1 to November 30.
E) January 15 to November 15.

Question 43

When some portions of the economy begin to fare poorly, the nature of economic policy making is most likely to turn from

A) client to interest group politics.
B) interest group to entrepreneurial politics.
C) entrepreneurial to client politics.
D) client to majoritarian politics.
E) majoritarian to interest group politics.

Question 44

Throughout its history, the federal budget has typically

A) concentrated on income.
B) concentrated on expenditures.
C) balanced income and expenditures.
D) ignored income and expenditures.
E) balanced income and inflation.

Question 45

The first unified presidential budget did not appear until the

A) 1820s.
B) 1860s.
C) 1880s.
D) 1920s.
E) 1930s.

Question 46

The passage of the first Reagan budget exemplified the close connection in Congress between

A) procedure and policy.
B) party alignment and procedure.
C) presidential leadership and party alignment.
D) party alignment and committee structure.
E) caucuses and special interests.

Question 47

The most obvious loophole in the Congressional Budget Act of 1974 is that

A) the projections on which spending is based are subjective.
B) the president can increase spending ceilings by reallocating other funds.
C) there is nothing in the process that requires Congress to tighten the government's financial belt.
D) its key section has been declared unconstitutional.
E) its key section and numerous applications have been declared unconstitutional.

Question 48

Since 1974, the purpose of congressional budget resolutions passed annually in May has been to

A) add up all the agreed-on expenditures.
B) set a ceiling on total spending.
C) get final authorization for all expenditures.
D) compromise over the spending measures of the two houses.
E) settle issues related to discrepancies in math.

Question 49

An example of the influence of interest group politics on economic health and policymaking is the debate over

A) Social Security.
B) highway spending.
C) personal income taxation.
D) foreign imports.
E) both A and C.

Question 50

Republicans tend to support free trade, but George W. Bush imposed sharp increases in the taxes that must be paid on imported steel because

A) Congress pressured him to do so.
B) the CEA recommended that he do so.
C) other nations had done the same thing.
D) he wanted political support in states such as Ohio and Pennsylvania.
E) of a bargain with Democratic senators.

Question 51

If only the economic health of the nation mattered, then ______________ politics would dominate.

A) majoritarian
B) interest group
C) client
D) entrepreneurial
E) organizational

Question 52

Entitlements such as Social Security or Medicare payments, veterans' benefits, or Supplemental Nutrition Assistance Program (SNAP; formerly food stamps) constitute about ______ of the federal budget.

A) one-sixteenth
B) one-tenth
C) one-fourth
D) one-half
E) two-thirds

Question 53

Each May, Congress is required by the ________ to adopt a budget resolution.

A) General Accounting Office
B) Congressional Budget Office
C) Congressional Budget Act
D) Congressional Research Service
E) Administrative Review Board

Question 54

Reagan's strategy in the budget battle of 1981 was to

A) focus on specific controversial programs and leave remaining programs at current spending levels.
B) pass a May budget resolution that called for further cuts in most programs.
C) form a consensus of liberals and conservatives.
D) get Congress to vote for a total package of cuts before it voted for particular cuts.
E) reduce party leaders to a subordinate role in the process by insisting on particular cuts on the front end of the process.

Question 55

Voters want a balanced budget and less governmental spending, but they also believe government should spend more on education and crime control. The authors say voters are

A) baffled by polling questions.
B) hopelessly uninformed.
C) easily manipulated.
D) clearly confused.
E) not irrational.

Question 56

The text argues that the most important component of the economic policymaking machinery is the

A) Treasury.
B) Congress.
C) OMB.
D) CEA.
E) NSA.

Question 57

After 1981, the budget procedures used in that year

A) were abandoned.
B) did not work as well.
C) continued to function in about the same way.
D) were significantly improved.
E) were institutionalized and improved.

Question 58

The Gramm-Rudman Act was passed by Congress to

A) fine-tune the existing budget procedures.
B) give more authority to the OMB.
C) eliminate deficit spending.
D) eliminate the balance-of-trade deficit.
E) eliminate tax cuts.

Question 59

According to opinion polls, the public wants all of the following except

A) a balanced federal budget.
B) lowered government spending.
C) more spending on education and other programs.
D) tight trade restrictions.
E) both A and B.

Question 60

Politicians who follow public opinion are most likely to look for a way to

A) lower taxes, balance the budget, and still fund favorite programs.
B) reduce inflation, lower unemployment, and still maintain a high rate of investment.
C) reduce unemployment, encourage business activity, and still allow importation of foreign goods.
D) support environmental- and consumer-protection issues, support business activity, and still keep the price of goods low.
E) reduce spending and increase taxes.

Question 61

High marginal tax rates have been offset by

A) deductions.
B) exemptions.
C) exclusions.
D) shelters.
E) all of the above.

Question 62

Which statement best describes the tax burden in the United States?

A) It is lower than it is in most other democratic nations.
B) It is about the same as it is in most other democratic nations.
C) It is slightly higher than it is in most other democratic nations.
D) It is much higher than it is in most other democratic nations.
E) It has fluctuated considerably, but just about always remained higher than in most other democratic nations.

Question 63

Democrats agreed to support loopholes that favored the rich in return for high marginal rates, because they feared that a combination of no loopholes and high marginal rates would

A) hurt the middle class more than it would hurt the wealthy by denying them Schedule C deductions.
B) discourage foreign investment and raise the cost of raw materials.
C) encourage foreign investment in U.S. industry, thereby hurting the economy indirectly.
D) seriously affect productivity by raising the cost of raw materials and labor.
E) hurt the economy by discouraging people and businesses from saving and investing.

Question 64

The term sequester refers to

A) those budget items, such as Social Security, that are largely uncontrollable.
B) the process of protecting certain items from budgetary review.
C) freezing budget items at previous levels.
D) a limit set on the percentage of uncontrollable expenses that the budget can contain.
E) automatic, across-the-board percentage cuts in the budget.

Question 65

The average citizen paid very little in income taxes until

A) the Great Depression.
B) the New Deal.
C) the election of Herbert Hoover.
D) the Korean War.
E) World War II.

Question 66

Keeping both the tax burden and tax evasion low would be an example of

A) client politics.
B) entrepreneurial politics.
C) interest group politics.
D) majoritarian politics.
E) reciprocal politics.

Question 67

Contributing to the success of loophole politics prior to passage of the 1986 tax bill was the

A) strong support of policy entrepreneurs such as Ralph Nader.
B) existence of low marginal rates to offset revenues lost through deductions.
C) decentralized structure of Congress.
D) existence of tariff revenues to offset revenues lost through deductions.
E) strong support of the conservative coalition and Ralph Nader.

Question 68

If a tax is progressive,

A) the wealthiest individuals pay the lowest rate.
B) the wealthiest individuals pay the highest rate.
C) every taxpayer pays the same rate.
D) rates are lower at the lowest and highest income brackets.
E) rates are the highest for the middle class.

Question 69

The big losers with respect to the Tax Reform Act of 1986 were

A) businesses.
B) individuals.
C) farmers.
D) the poor.
E) both C and D.

Question 70

When Congress first created a peacetime income tax (in 1895),

A) it distributed the money evenly among the states.
B) the president vetoed the legislation.
C) several states threatened to secede from the Union.
D) the deficit disappeared instantly.
E) the Supreme Court declared it unconstitutional.

Question 71

Among the interest groups that have organized around loopholes are

A) home builders.
B) universities.
C) insurance companies.
D) automakers.
E) all of the above.

Question 72

In 1993, President Clinton raised the top income tax rate to over

A) 15 percent.
B) 20 percent.
C) 31 percent.
D) 39 percent.
E) 53 percent.

Question 73

Before the creation of the federal income tax, most of the money that the government needed came from

A) loans.
B) state contributions.
C) private wealth.
D) tariffs.
E) public charity.

Question 74

President ________ was notable for saying, "Read my lips. No new taxes."

A) Bill Clinton
B) Gerald Ford
C) Ronald Reagan
D) George H. W. Bush
E) John F. Kennedy

Question 75

The political compromise reached on taxation in the first half of the twentieth century included

A) high marginal tax rates and numerous loopholes.
B) low marginal tax rates and numerous loopholes.
C) high marginal tax rates and few loopholes.
D) low marginal tax rates and few loopholes.
E) none of the above.

Question 76

Loophole politics is an example of

A) majoritarian politics.
B) interest group politics.
C) entrepreneurial politics.
D) client politics.
E) reciprocal politics.

Question 77

From the inauguration of income tax up to the 1950s, tax rates tended to rise and fall with

A) the cycles of public opinion.
B) good and bad economic times.
C) war and peace.
D) Democratic and Republican administrations.
E) critical or realigning elections.

Question 78

The Budget Enforcement Act of 1990 focused on limiting

A) travel expenses.
B) payment on the national debt.
C) existing contracts.
D) entitlements.
E) discretionary spending.

Question 79

Which of the following procedures was called for by the Gramm-Rudman Balanced Budget Act of 1985?

A) Spending could not exceed 2.5 percent of the previous year's actual spending.
B) The budget would automatically be cut until the deficit was eliminated.
C) Spending could not exceed 2.5 percent of the previous year's budgeted spending.
D) All budget items would be indexed to the rate of inflation.
E) All budget items would be decreased by 10 percent until they returned to pre-1970 levels.

Question 80

All of the following gave significant tax benefits to most taxpayers except

A) mortgage interest deductions.
B) Schedule C deductions.
C) state tax payments.
D) interest on consumer loans.
E) local tax payments.