Download American Government 100 Part IV Patterson, pgs. 546

American Government 100
Patterson, pgs. 546-559, AG26-11
Fiscal Policy: As An Economic Tool
Part IV
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. The national debt already exceeds $13 trillion and growing in a political environment that is
polarized and seemingly unable to deal with the looming fiscal crisis. True or False
4. Lower- income Americans are a core Democratic constituency and are the most deeply
affected by rising unemployment. True or False
5. The $787 billion economic stimulus bill passed by Congress in 2009 was filled with demandside programs and was ostensibly a Republican bill. True or False
6. Democratic policy-makers have pursued tax policies that favor working-class and lowermiddle-class Americans unlike Republicans whose tax policies favor the rich and business firms.
True or False
7. President Bush was correct when he argued that his tax cuts would boost economic activity to
such an extent that government revenue would actually increase. True or False
8. Bush’s supply-side tax cuts had the support of 90 percent of congressional Republicans and
only 20 percent of congressional Democrats. True or False
9. The inflation rate has not topped 5 percent in any year during the past two decades. True or
False
10. Monetary policy involves increasing the money supply to boost the economy and decreasing
the money supply to slow it down. True or False
11. By increasing the reserve rate of members banks, the Fed takes money out of circulation.
True or False
12. According to Patterson, the Fed's power can easily be exaggerated for the economy is
impacted by a multiplicity of influences. 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
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14. The restraints on the Fed are much stronger than those on popularly elected officials. True or
False
15. 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 and assumed a passive role, c) supported industrial subsidies, but
avoided the same for farming interests, 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. 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.
4. 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.
5. The total cumulative amount the federal government owes to its creditors: a) federal
remuneration, b) national recovery funds, c) national debt, d) public financial compact.
6. In 2010, the federal government’s budget deficit was roughly: a) $523 billion, b) $639 billion,
c) $959 billion, d) $1.5 trillion.
7. What is the percent of the federal budget that goes to pay interest? A) 10%, b) 15%, c) 21%, d)
25%
8. Which residents of the following state are the biggest losers nationwide since they pay a lot
more in federal taxes than they receive in benefits ($.61 for every dollar they pay in federal
taxes): a) Arizona, b) California, c) New Jersey, d) Vermont.
9. 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 ($2.03 for every dollar they pay in federal
taxes): a) Alabama, b) Florida, c) Idaho, d) New Mexico.
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10. A cornerstone of President Reagan's economic program, whereby tax breaks for businesses
and upper-income individuals was the way to stimulate economic growth: a) demand-side fiscal
policy, b) business stimulation theory, c) supply-side economics, d) private-sector capital
accumulation.
11. A tax that individuals pay on capital-investments, such as property and stocks: a) moneyinvestment tax, b) capital-gains tax, c) income-generated tax, d) capital-induced tax.
12. Under Bush, the capital-gains tax rate fell from 28% to: a) 23%, b) 19%, c) 15%, d) 8%.
13. When Bush took office in 2001, the budget was balanced and the national debt stood at: a)
$3.3 trillion, b) $5.7 trillion, c) $8.2 trillion, d) $10.6 trillion
14. An increase in the average level of prices of goods and services: a) inflation, b) stagflation, c)
deflation, d) recession.
15. How high did interest rates rise on business and home loans in the late 1970s due to
inflation? a) 5%, b) 12%, c) 15%, d) 19%
16. To fight inflation, government should: a) decrease taxes on both corporations and
individuals, b) decrease interest rates via monetary policy and increase expenditures, c) expand
the federal budget while decreasing taxing, d) cut expenditures and raise personal income taxes.
17. 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.
18. 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.
19. 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.
Fill-in Questions
1. According to John Maynard Keynes, when there is a downturn in the economy,
a) the government should ___________ for the slowdown in private spending by
___________ its own spending level.
b) In doing so, the government ______ ______ into the economy, which
c) stimulates _________ _________, which in turn
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d) stimulates _________ ___________ and
e) creates _____, thereby
f) __________ the _________ recovery.
2. Why do Republicans typically resist large spending increases by the federal government
outside of military procurements?
a) because government has to _______ the money, which
b) creates _______ pressure on _________ rates,
c) including the rates that _________ ______ have to pay for their loans.
3. The following are principles embraced by monetarists when evaluating 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
____________, because:
d) __________ lack the ready cash and easy credit required to push spending levels up.
4. How does the Fed affect the money supply?
a) by raising or lowering the _____ ________ that member banks are required to
________ with the Federal Reserve,
b) This reserve is a ___________ of each members total deposits.
c) By raising or lowering _________ ______ that member banks pay when they _______
money from the Federal Reserve.
Answers
True or False Questions
1. False
3. True
5. False
7. False
9. True
11. True
13. False
15. True
Multiple Choice Questions
1. b
3. c
5. c
7. b
9. d
11. b
13. b
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15. c
17. a
19. b
Fill-in Questions
1. a) compensate, increasing, b) pumps money, c) consumer spending, d) business production, e)
jobs, f) hastening, economic
3. a) a) inflation, b) dollars, goods, c) unemployment, d) consumers
A:AG26-11
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