Test 4 Review: Government's Role in the Economy

How many economic downturns have there been in the United States since 1855?

33

Hazlitt writes about an example of government spending where bureaucrats want to build a new bridge connecting two towns, even when existing bridges can easily handle the current traffic. What are the arguments made for building the bridge even though it isn't needed? (choose all that apply)

Building the bridge will provide employment the bridge will exist thanks to government spending, when otherwise it wouldn't have

The payroll tax that funds Social Security and Medicare is called the _____ tax.

FICA

What committee is responsible for conducting monetary policy?

Federal Open Market Committee

What United States president initiated an unprecedented spending spree with the introduction of the New Deal?

Franklin D. Roosevelt

The supervising body of the Federal Reserve that is responsible for providing general guidance to the Fed and supervising the regional banks is called the Board of ________.

Governors

According to Hazlitt, which of the following are true about hoarding? (choose all that apply)

Irrational hoarding of cash is harmful in most economic situations Dishoarding, as people die and their hoards are discovered by others, likely offsets new hoarding

According to Hazlitt, which of the following are effects of keeping interest rates artificially low? (choose all that apply)

It increases the demand for capital in encourages highly speculative ventures

According to Hazlitt, which of the following are effects of keeping interest rates artificially low? (choose all that apply)

It increases the demand for capital. It decreases the supply of real capital. It encourages highly speculative ventures.

Which of the following would happen if the Federal Reserve raised the reserve requirement? (choose all that apply)

It would lead to higher interest rates. It would reduce the amount of money banks could lead.

Classical economists like Adam Smith believed the economy was self-correcting in the long run. Which economist argued that waiting for the economy to self-correct was foolish, saying, "In the long run we're all dead," and instead recommended strong action by the government to jump-start the economy?

John Maynard Keynes

Compare and contrast the Keynesian and Austrian schools of economic thought. Who were the founders of these schools, and what are the main ideas of each school?

Keynesian john maynard keynes aggregate demand price stickiness immediate Austrian carl menger long term

According to Hazlitt, which of the following are true about new capital? (choose all that apply)

Producers invest in new capital goods because they reduce the costs of production Even if a greater quantity of goods isn't needed, new capital can create goods of improved quality

Which of the following were programs or legislation created during the New Deal? (choose all that apply)

Social Security Act Public Works Administration Agricultural Adjustment Act Civilian Conservation Corps

During this economic downturn, unemployment reached the new height of 24.9%

The Great Depression

This recession was triggered by a subprime mortgage crisis, which led to a bank credit crisis

The Great Recession

According to Hazlitt, which of the following are true about new capital? (choose all that apply)

There is essentially no limit to the amount of new capital that can be absorbed. Even if a greater quantity of goods isn't needed, new capital can create goods of improved quality. Producers invest in new capital goods because they reduce the costs of production.

Why is contractionary fiscal policy rarely used?

Voters don't like tax increases, and politicians who pass such laws risk being voted out of office

An extremely long and severe economic contraction is called a(n) _________.

depression

Raising the reserve requirement will lead to __________ interest rates.

higher

Hazlitt writes that "savings" can be defined as the available supply of new capital and that "investment" can be defined as the demand for new capital. Just like supply and demand determines the price for anything else, supply and demand determines the price that savers are paid for loaning out their money. What does Hazlitt say is "the special name for the price of [this] loaned capital"?

interest rate

Name at least three reasons that the American national debt has risen to such high levels.

more deficits than surpluses/spend more than save superfluous programs and subsidies that require money Pay off deficits with loans and has a lot of interest war

A sales tax is a tax that's levied when an item is sold, whereas an excise tax is a tax that's levied when an item is __________.

produced

One of the Federal Reserve's responsibilities is regulating financial institutions. Which of the following are the purposes of the Federal Reserve's oversight and regulation? (choose all that apply)

promoting the safety and soundness of the banking system fostering stability in financial markets ensuring compliance with applicable laws and regulations

Which of the following are ways that the United States government provides ongoing economic support? (choose all that apply)

supporting jobless workers with unemployment insurance assuring the nation's financial institutions remain healthy promoting innovation and invention

The lowest level of the business cycle is known as the _________.

trough

Which of the following are negative consequences of an economy that is growing too quickly? (choose all that apply)

unsustainability, asset bubbles

How many regional Federal Reserve banks are there?

12

By the end of 2019, the national debt of the United States reached __________.

23 trillion

Why do consumers reduce their buying after an economic downturn has started? (choose all that apply)

Because they fear they may lose their jobs because prices of goods have already fallen, and they fear a further fall.

What is the central error at the root of the idea that saving is bad for the economy?

Forgetting that the money being saved on consumer goods is being spent on capital goods.

What are the results of contractionary fiscal policy rarely being used? (choose all that apply)

High inflation increased government debt

One of the American government's ongoing economic policies is assisting research through grants and programs. Which of the following agencies is an example of such programs?

National Institutes of Health

What happens when providing employment becomes the primary reason (the end instead of the means) for government spending? (choose all that apply)

Need becomes a subordinate consideration. Government projects have to be invented.

The corporate income tax was reduced from 35% to 21% by the ________________.

Tax cut and Jobs act of 2017

One factor that cause this recession was the introduction of wage and price controls

The Oil Crisis Recession

this economic contraction was set off by the failure of the Philadelphia and Reading Railroad

The Panic of 1893

The finer points of America's federal budget are first debated in twelve _____________.

appropriations committees

America's budget deficit reached a trillion dollars during the terms of which presidents? (choose all that apply)

barak obama, donald trump

Hazlitt discusses the fact that the Tennessee Valley Authority increased prosperity in its region. Why does he say this isn't surprising and shouldn't be regarded as a miraculous result of government spending?

because taxes were taken from other parts of the country and concentrated in this one section

An event where assets like housing, oil, or gold increase significantly, beyond their actual value, is called an asset ________.

bubble

According to the video, one factor that affects the different phases of the business cycle is consumer-producer _____________.

confidence

Hazlitt argues that saving is not a cause of depressions but is instead a(n) __________ of depressions.

consequence

The period of the business cycle where growth slows down and unemployment increases is called the ____________ phase.

contractionary

Fiscal policy characterized by decreased government spending and increased taxes is called ____________.

contractionary fiscal policy

Government policies designed to create economic growth by increasing aggregate demand are called ________________.

demand-side policies

The reserve requirement is the percentage of _________ that banks must hold in reserve.

deposits

When a bridge is built using taxpayer funds, the result is a _________.

diversion of jobs

Nearly all market economies experience long-term growth because of ___________.

economic incentives

Higher interest rates would ____________ saving.

encourage

Increased taxes reduce the economic incentives for business success. Which of the following are consequences of these reduced incentives? (choose all that apply)

everything but improved machinery

The period of the business cycle where economic growth increases and unemployment decreases is called the _____________ phase.

expansionary

Fiscal policy characterized by increased government spending and decreased taxes is called ______________.

expansionary fiscal policy

List the four phases of the business cycle in order, and define each phase. Explain the difference between a recession and a depression.

expansionary phase-growth increases unemployment decreases-, peak-top of the business cycle-, contractionary phase-greater unemployment-, trough-slowest growth highest unemployment, expansionary phase

________ policy refers to changes in federal taxation and spending that are designed to influence the economy.

fiscal

In his discussion of public works, Hazlitt writes, "There is no more persistent and influential faith in the world today than the faith in ______________."

government spending

When the Federal Reserve sells securities to banks, it leads to ___________ interest rates.

higher

When government revenues *exceed* government expenditures, the federal budget is considered to be __________.

in surplus

If the discount rate is low, the overall money supply will __________.

increase

What is usually a downside of lowering taxes and increasing government spending?

increased government borrowing

Which of the following are consequences of contractionary monetary policy rarely being used? (choose all that apply)

increased government debt high inflation

Which of the following are examples of monetary policy strategies the government can use to encourage economic growth and lower unemployment? (choose all that apply)

increasing money supply lowering interest rates

Which of the following are examples of monetary policy strategies the government can use to encourage economic growth and lower unemployment? (choose all that apply)

increasing the money supply lowering interest rates

What government economic strategy reduces taxes on businesses who invest in increasing their productivity?

investment tax credits

According to Hazlitt, which of the following would happen if money that had previously been used for saving was instead used to buy consumer goods?

it would decrease the price of *capital* goods

Which of the following are examples of supply-side policies the government can use to encourage economic growth and lower unemployment? (choose all that apply)

job training programs deregulation

One consequence of the government borrowing a lot of money is reduced investment. The government will have to spend much of its budget on interest payments instead of making investments in areas such as infrastructure, education, and research. Which of the following are ultimately consequences of reduced investment? (choose all that apply)

larger deficits, slower economic growth

The Federal Reserve's goals of helping America achieve stable prices, economic growth, and full employment is referred to as the Fed's ____________.

mandate

The management of a nation's money supply and interest rates is called __________ policy.

monetary

Hazlitt writes that the "pleasant dreams" of the government being able to spend without taxing and being able to endlessly pile up debt "have always been shattered by" what?

national insolvency or runaway inflation

What theory popularized by John Maynard Keynes says that while saving might be beneficial for an individual, it is harmful to the overall economy?

paradox of thrift

The top of the business cycle is known as the __________.

peak

Increased taxes reduce the economic incentives for business success. Which of the following are consequences of these reduced incentives? (choose all that apply)

people are deterred from starting new enterprises existing businesses don't give new employment potential entrepreneurs decide not to become new employers improved machinery and technology ae developed more slowly real wages are held down consumers are prevented from getting better and cheaper products

Large-scale asset purchases in which a central bank buys government bonds or other financial assets from commercial banks and other financial institutions is known as _____________.

quantitative easing

A long economic contraction, defined by some economists as a contraction lasting more than six months, is called a(n) ____________.

recession

Open market operations involve the purchase and sale of government ___________.

securities

Government policies designed to create economic growth by increasing productivity and efficiency are called ____________.

supply-side policies

Which of the following are services provided by the Federal Reserve? (choose all that apply)

supplying banks with paper money and coins protecting consumers through regulation and education processing checks and electronic payments

What factors affect the different phases of the business cycle? (choose all that apply)

technological change consumer-producer confidence monetary policy fiscal policy

What American recession was triggered by a subprime mortgage crisis, which led to a bank credit crisis?

the great recession

Contractionary fiscal policy can be beneficial when the economy is growing at a greater rate than ____________.

two to three percent per year

An asset bubble occurs when assets like housing, oil, or gold increase significantly, beyond their actual ______.

value