Unit 14: Fiscal Policy and Trade

Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets?

Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy.

In regards to fiscal policy, which of these statements is correct?

Fiscal policy is not considered the most efficient means to solve short-term economic problems. | Fiscal policy refers to governmental budget decisions enacted by the U.S. President and Congress.

Which of the following are considered tools used to implement fiscal policies?

Government spending | Taxation

You should expect which of these to occur when the dollar strengthens against other currencies?

Imports will become less expensive | Inflation will go down

The federal government could use which of the following to stimulate the economy?

Increase government spending

The principles of demand-side theory were laid out in the 1936 book, The General Theory of Employment, Interest, and Money written by who?

John Keynes

What is the economic theory that says the government can and should effect individual spending by adjusting taxes and government spending?

Keynesian

Match the following statement to the best term: Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.

Keynesian Theory

Demand-side economics call on the federal government to do which of the following to encourage economic activity?

Lower personal income tax rates

Match the following statement to the best expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.

Monetarist Theory

Select the two distinctive types of policies that impact the U.S. economy.

Monetary and fiscal

The federal government could use which of the following to slow the economy?

Raise taxes

Match the following statement to the best expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.

Supply-side Economic Theory

It would be reasonable to expect an increase in exports from the United States if which of these occurred?

The yen strengthened against the dollar | The dollar weakened against the British pound

A weak U.S. dollar leads to more

U.S. exports and a balance of payments surplus.

A strong U.S. dollar leads to more

U.S. imports and a balance of payments deficit.

Which of the following is a true statement with regard to either U.S. securities laws or the description of international economic factors?

When the U.S. dollar is strong, foreign currency buys fewer U.S. goods.

All of the following would decrease the U.S. balance of payments deficit except

a decrease in purchases of U.S. securities by foreign investors.

The U.S. balance of payments deficit would decrease in all of the following scenarios except

a decrease in purchases of U.S. securities by foreign investors.

To grow or expand the economy, U.S. fiscal policy should be to

cut taxes and increase government spending for programs and development.

Laws increasing or decreasing taxation would be best associated with

fiscal policy enacted by the president and Congress.

If the U.S. dollar is weak against foreign currency,

foreign currency buys more U.S. goods; therefore, U.S. exports will increase.

The country's annual economic output of all of the goods and services produced within the nation, is known as

gross domestic product.

Deflationary periods are characterized by all of the following except

increased consumer demand.

A deficit in the U.S. balance of payments can occur if

interest rates in foreign countries are higher than U.S. domestic rates. | U.S. consumers are purchasing (importing) foreign goods.

A surplus in the U.S. balance of payments can occur if

interest rates in foreign countries are higher than U.S. domestic rates. | foreign consumers are purchasing (importing) U.S. goods.

Fiscal policy

is not considered the most efficient means to solve short-term economic issues. | is reflected in the budget decisions enacted by our president and Congress.

There are two distinctive types of policies implemented to shape and mold the U.S. economy. They are

monetary and fiscal.

A surplus in the balance of payments is best described by

more money flowing into the United States than out.

A supply-side approach to fiscal policy will use all of these tools except

personal income tax rebates.

To contract or slow economic growth U.S. fiscal policy should be to

raise taxes and cut government spending for programs and development.

Exports from the United States would likely increase if

the Japanese yen strengthened against the dollar. | the U.S. dollar weakened against the British pound.

If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that

the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States.

The flow of money between the United States and other countries is known as

the balance of payments.

The largest component of the U.S. balance of payments is

the balance of trade.

Sparkly florescent earbuds made in the U.S. by Irksome, Inc., are suddenly popular in Asia. People from Canton to Calcutta are buying them in huge numbers. This is most likely to cause

the trade deficit to decrease, or surplus to increase.

Fiscal policy seeks to encourage or discourage economic activity through the

use of government spending and taxation.

Your client, Ann Porter, likes fast cars and has been saving for a high-end Italian sports car. She recently saw a report that said the dollar was likely to drop in the near future. She is concerned that this might affect her plans to buy her dream car next year. You tell her

yes, it will likely cost her more to buy the car if the dollar drops.