American Government 100 Part IV
Patterson, pgs. 461-473, AG26-17
Fiscal Policy As An Economic Tool
True or False Questions
1. Through changes in its level of spending and taxation historically, government has not been able to stimulate or slow the economy when it deemed necessary. True or False
2. Keynes never distinguished between a milder economic recession and severe depression, arguing that in both cases the government should engage in massive new spending programs to speed the recovery. True or False
3. Lower-income Americans are a core Democratic constituency and are usually the most deeply affected by rising unemployment. True or False
4. The $787 billion economic stimulus bill passed by Congress in 2009 was filled with demand-side programs and was basically a Republican bill. True or False
5. By the time President Bush, Jr. left office, the budget deficit had reached nearly $500 billion and the national debt had doubled. True or False
6. Unlike Bush, the national debt went dramatically down under President Obama because of his more responsible fiscal policies. True or False
7. Monetarists believe in increasing the money supply when the economy needs a boost and decreasing the supply when it needs to be slowed down. True or False
8. The Federal Reserve (FED) was created in 1913 and it assists and regulates all national banks and those state banks who choose to become members. True or False
9. By increasing the reserve rate of member banks, the Fed puts more money into circulation; thus, helping grow the economy. True or False
10. When it sells government securities in exchange for cash, the Fed is increasing the amount of money in circulation, thereby increasing the amount of money available for consumption and investment. True or False
11. During the late 1970s and early 1980s, the Fed kept the prime interest rate above 10 percent for seven years. True or False
12. The greater flexibility of monetary policy is a reason the Fed has emerged as the institution that has primary responsibility for keeping the U.S. economy on a steady course. True or False
13. The fact is the Fed is a wholly impartial body, representing the public interest and no special interest. True or False
14. A Pew Research Center national poll found that 87 percent of Americans supported the use of taxpayer money to bail out banks, including those responsible for the Great Recession. True or False
15. The restraints on the Fed are much stronger than those on popularly elected officials. Its governors can be removed by both the Congress or the president at any time. True or False
16. Although the American economy has suffered from economic downturns during the roughly three-quarters of a century in which the U.S. government has played a significant policy role, none of them has matched the severity of the depressions of earlier times. True or False
Multiple Choice Questions
1. Prior to the 1930s, the federal government adopted the following policy when dealing with the nation's economy: a) had extensive policies in place to stimulate the economy, b) believed that the market was self-regulating, that it would correct itself after a downturn c) aggressively regulated the economy while maintaining ownership of key industries, such as steel, the railroads, and coal, d) limited support programs to the unemployed worker, but no one else.
2. What shattered the idea that the economy was self-regulating, able to correct any downturn that came along? a) the Russian Revolution, b) the Progressive Era, c) Collective bargaining, d) the Great Depression.
3. The government’s efforts to maintain a thriving economy occur in part through its taxing and spending decisions which together are referred to as: a) fiscal policy, b) comparative advantage, c) classical easing, d) moral hazard.
4. John Maynard Keynes offered the following economic policy when a depression occurs: a) The government should curtail its expenditures to bring needed capital into private hands, b) The government should print less money to assure that consumers and investors can help stimulate the economy, c) The government should engage in massive deficit spending to help stimulate recovery, d) The government should let the market rectify the economic downturn by limiting its role.
5. How can government slow down the economy during an inflationary period where prices are rising rapidly? a) it can increase its spending, b) it can cut taxes, c) it can decrease its spending, d) it can decrease its regulations.
6. Which residents of the following state are the biggest losers nationwide since they pay a lot more in federal taxes than they receive in benefits: a) Arizona, b) California, c) New Jersey, d) Vermont.
7. Which residents of the following state are the biggest winners nationwide since they pay a lot less in federal taxes than they receive in benefits: a) Alabama, b) Florida, c) Idaho, d) New Mexico.
8. A cornerstone of the Reagan and Bush administrations’ response to slowing economic growth: a) demand-side fiscal policy, b) business stimulation theory, c) supply-side economics, d) private-sector capital accumulation.
9. Under President Bush’s tax cuts, the bottom 20 percent received $67 in benefits. What was the tax savings for the top 1 percent of income? a) $33,267, b) $54,493, c) $73,522, d) $81,241.
10. When the federal government spends more in a year than it receives in tax and other revenues: a) monetary debt, b) budget deficit, c) economic windfall, d) short-term losses.
11. The national debt of the U.S. government is: a) about $250 billion, b) less than $300 billion, c) about $1 trillion, d) exceeds $19 trillion.
12. The interest on the federal debt now accounts for what percent of the overall federal budget? A) less than 5%, b) about 12%, c) nearly 15%, d) nearly 20%.
13. The means by which government affects the economy based on the adjustments of the amount of money in circulation: a) monetary policy, b) fiscal incentives, c) supply-side economics, d) demand management manipulation.
14. Control over the money supply rests with: a) the president, b) Congress, c) the Federal Reserve System, d) the Treasury Department.
15. The 7 governors (except for the chair and vice-chair who serve 4 year terms) who comprise the board of the Fed, serve terms of: a) 4 years, b) 8 years, c) 14 years, d) no limit.
16. During the 2008 subprime mortgage crisis, why did the Fed reduced the reserve rate several times? a) in an effort to punish banks that had behaved irresponsibly, b) to deal with the shortfall of money financial institutions would experience from failed mortgages, c) to provide low-interest loans to struggling and financially strapped consumers, d) to allow member banks to give raises and bonuses to its employees.
17. In an effort to pump more money into the economy after having lowered interest rates to the point of zero during the Great Recession, the Fed began buying assets, including bad mortgage-backed securities from member banks that came to be known as: a) fool’s gold, b) artificial consolidation, c) equity enhancements, d) quantitative easing.
18. How much money did the Fed spend in purchasing the “bad” assets from member banks during the Great Recession that prevented the financial markets from completely collapsing from 2009 to 2014? a) $100 billion, b) $1 trillion, c) $3 trillion, d) $5 trillion.
19. From where did the Fed get the money to purchase the questionable (bad) assets to save the financial institutions that caused the Great Recession? a) wealthy financiers, b) it had the money printed, c) it borrowed the money from the governments of China, Japan, and Germany, d) it requested gold from Fort Knox to be sold in the open market.
20. Why is quantitative easing is considered a tool of “last resort?” a) the U.S. treasury needs to sell government bonds at low interest rates, to maintain the social safety net, b) the economic bubble created by such a policy takes decades to relieve, c) it would have destroyed the value of the U.S. currency had it continued, d) the policy itself assures for the stability of the public sector at the expense of the private sectors of the economy.
21. An increase in the average level of prices of goods and services: a) inflation, b) stagflation, c) deflation, d) recession.
22. How high did interest rates rise on business and home loans in the late 1970s due to inflation? How high did interest rates rise on business and home loans in the late 1970s due to inflation? a) topped 5%, b) topped 12%, c) topped 15%, d) topped 19%.
23. To fight inflation, the Fed should: a) decrease interest rates on both corporations and individuals, b) decrease the reserve rate that member banks must maintain, c) expand the money supply, d) raise interest rates and sell more government securities.
24. What is the key advantage that monetary policy has over fiscal policy according to Patterson? a) monetary policy is less complex than fiscal policy, b) monetary policy can be implemented more quickly, c) members of the Fed are independent of the public and powerful interest groups, d) the Fed has the ability to affect taxes.
25. The government’s efforts to maintain a thriving economy occur in part through its taxing and spending decisions which together are referred to as: a) fiscal policy, b) comparative advantage, c) classical easing, d) public stimulus.
Fill-in Questions
1. According to John Maynard Keynes, when there is a downturn in the economy,
a) the government can shorten it by ___________ its own spending level.
b) In doing so, the government pumps ______ into the economy,
c) which stimulates _________ spending,
d) which in turn stimulates _________ production and
e) and creates _____,
f) thereby hastening the _________ recovery.
2. When it comes to federal taxes, why are most of the “losers” (states that pay more taxes to the federal government than they receive) in the northeastern section of the country?
a) States in the northeast are __________ than most states.
b) Because of this, they also get _____ ________ assistance for programs designed to help ______-_______ people and areas.
c) Finally, most federal ______ and _________ installations—sources of federal money—lie outside the Northeast.
3. Why do Republicans typically resist large spending increases by the federal government?
a) because government has to _______ the money, which
b) creates _______ pressure on _________ rates,
c) including the rates that _________ ______ have to pay for ______.
4. The following are principles embraced by monetarists when dealing with the economy:
a) Too much money in circulation contributes to __________ because:
b) too many ________ are chasing too few ______, which drives up prices.
c) Too little money in circulation results in slowing the economy and rising ____________,
d) because __________ lack the ready cash and easy credit required to maintain spending levels.
5. What tools are available to the Fed to add or subtract money from the economy in an effort to permit steady growth while reigning in an unacceptable level of inflation?
a) it decides whether to raise or lower the percent of ______ that member banks are required to hold in ________.
b) It can raise or lower the _________ _____ that member banks pay when they borrow money from the Federal Reserve.
c) It can buy or sell government ___________.
Answers
True or False Questions
1. False
3. True
5. True
7. True
9. False
11. True
13. False
15. False
Multiple Choice Questions
1. b
3. a
5. c
7. d
9. b
11. d
13. a
15. c
17. d
19. b
21. a
23. d
25. a
Fill-in Questions
1. a) increasing, b) money, c) consumer, d) business, e) jobs, f) economic
3. a) borrow, b) upward, interest, c) business firms, loans
5. a) funds, reserve, b) interest rate, d) securities
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