Chapter 16

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Government and the Economy

In 2001, President Bush and Congress cut taxes significantly. Because of this and the cost of the Iraq war, the United States now has

large deficits.

Which is true regarding income distribution and growth in the last twenty-five years?

The poor have seen little income growth, while income for the rich has grown dramatically.

If citizens who earn less than $13,000 a year pay 10.9 percent of their income in taxes, and those with incomes over $229,000 pay 4.1 percent, this would be an example of

a regressive tax policy.

Fiscal techniques of control concern

government taxing and spending powers.

The theories of which economist was used to help justify the increase in government spending during the New Deal?

John Maynard Keynes

The interest rate the Federal Reserve System charges member banks is called

the discount rate.

In general, __________ stress the importance of economic freedom for maintaining a healthy economy, whereas ____________ are often more willing to support economic regulation to attain social or environmental objectives.

Republicans; Democrats

Monetary policy is handled largely by

the Federal Reserve System.

_____________ are goods that are provided by the government because they either are not supplied by the market or are not supplied in sufficient quantities.

Public goods

Which of the following is not an approach advocated by policy makers for coping with global warming?

Deregulation

Unless Congress makes them permanent, the controversial tax cuts enacted by the Bush administration were set up to expire in what year?

2010

The most powerful actors in influencing economic policy today are

corporations.

The federal government supports the economy by

buying goods and services from the private sector.
providing a legal framework that protects the operations of business.
subsidizing many activities in the private sector.
All of the above

The government provides public goods such as roads

because individuals could not afford to build them privately.

When private corporations are required to be equal opportunity employers or not receive government contracts, the government is

using reward and punishment to secure private sector obedience.

The __________ is the index of the total output of goods and services produced in the economy.

gross domestic product

If Senator Winfrey believed that the best way for the government to respond to the recession is to pump up the economy with tax cuts and spending, she would be considered

a Keynesian.

In the past few decades, discretionary spending as a percentage of the budget has declined significantly. This means that

the government is less able to use fiscal policy to counteract fluctuations in the business cycle.

____________ are simply government grants of cash or other valuable commodities.

Subsidies

Americans have been more concerned with ensuring economic _________ than with promoting economic _________

liberty; equality.

Someone who believes in laissez-faire economics would most likely favor

government protection of private property with few other government regulations.

Economic inequality in the United States

has worsened in recent years.

Monetary policy seeks to influence the economy through

the availability of credit and money.

Why have government subsidies as a control technique been favored by politicians?

Subsidies are treated as benefits.
They can be used to buy off the opposition.
Those who receive the benefits do not perceive the controls inherent in them.
Once created, the threat of removal of the benefits is a significant technique of control.
All of the above

In general, when the Federal Reserve Board raises interest rates,

the economy slows down.
it does so to slow inflation.
borrowing for investment and consumption is discouraged.
All of the above

A proponent of supply-side economics would probably agree with which of the following economic policies?

A tax break to all Americans to create productive workers and induce personal investments

A consistent increase in the general level of prices is called

inflation.

The chairperson of the Federal Reserve Board is

Ben Bernanke.

Which institution has the formulation of the nation's monetary policy as its primary mission?

Federal Reserve Board

In terms of economic policy, monetarists believe that the government should

focus on regulating the money supply.

According to the textbook, what arose from the unprecedented prosperity of the 1960s?

Social regulation

Although the primary purpose of the graduated income tax is to raise revenue, an important secondary objective is to collect revenue in such a way as to reduce the disparities of wealth between the lowest and the highest income brackets. We call this

a policy of redistribution.

When was the last year when the U.S. government ran a budget surplus?

2000

Which of the following is a policy that can be used to address global warming?

Mitigation of greenhouse gases
Research and development to promote alternative energy
Identifying measures that will allow America to adapt to warmer temperatures
All of the above

Which of the following is not a proposed consequence of global warming?

Lower sea levels

Government involvement to regulate the business cycles was the idea of

John Maynard Keynes.

Which of the following is not an important objective of U.S. economic policy?

Economic growth
Full employment
Low inflation
All of these are important objectives of economic policy.

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