Chapter 15

public good

A benefit provided to a group of people such that each member can enjoy it without necessarily having to pay for it, and such that one person's enjoyment of it does not inhibit the enjoyment of it by others.

redistributive policy

A government benefit provided to some people that is paid for by another group of people.

distributive policy

A government policy intended to provide benefits to large portions of the population.

private good

A product or benefit provided such that its enjoyment can be limited to specific people, and such that one individual's consumption of it precludes others from consuming it.

regressive tax

A tax that places a greater financial burden on the poor and middle class than on the wealthy.

progressive tax

A tax that places a greater financial burden on the wealthy than on the poor and the middle class.

common good

A variant of a public good; a benefit provided to a group of people that each member can enjoy without necessarily having to pay for it, but such that one individual's consumption of it precludes others from consuming it.

club good

A variant of a public good; a product or benefit provided such that its enjoyment is exclusively for those who paid for it, but for which one person's enjoyment of it does not inhibit the enjoyment of it by others

laissez-faire

An economic philosophy advocating that the government take a noninterventionist approach to the economy, leaving market forces alone to determine the economic behavior of people and business firms

Federal Reserve Board

Board of directors, consisting of seven members appointed by the president, in charge of policies for the Federal Reserve System.

national deficit

Definition

externalities

Effects on people, good or bad, arising from the economic behavior of others. Also known as spillover effects.

capital

Goods used to create other goods in an economy

monetary policy

Government management of the supply of money in the economy, which affects prices, interest rates, and the availability of loans.

Federal Reserve System

Network of U.S. government banks that loan money to and regulate the commercial behavior of private banks.

Suppose that the government developed a ranching-assistance program that allowed ranchers to graze their animals over certain public lands but requested that ranchers be sparing in their use of the land so that the plant life could recover and the land would be available in the future. Which of the following events is most likely to follow?

Ranchers will ignore the advice and graze more frequently for personal benefit, and the common lands will be used up.

fiscal policy

Taxing and spending decisions by the government.

Which of the following statements is not true of the federal budget?

The budget is a binding document that determines how much money is appropriated to each program.

When government policies are designed to regulate commerce, what does this mean?

The policies provide the rules for the conduct of business.

national debt

The total amount owed to those who have loaned money to the government.

gross domestic product (GDP)

The value of all the goods and services produced by an economy within its borders.

Suppose that a politician said that the United States economy adhered to strict laissez-faire capitalism. Which of the following facts make this statement inaccurate?

There are publicly owned companies such as Amtrak and the Tennessee Valley Authority.

inflation

When the purchasing value of a unit of currency, such as the dollar, declines so that goods and services cost more of the currency.

deflation

When the purchasing value of a unit of currency, such as the dollar, increases, so goods and services are worth less of the currency.

When individuals enroll in college, they do so to obtain an education that primarily serves to provide them with private benefits, such as the prospect of higher income, a better career choice, or knowledge about subjects of interest. However, each additional college graduate in a state also provides the public benefit of showing potential employers that a state has a well-educated workforce, increasing the chance that jobs will move to the state. This public benefit is an example of:

an externality.

Deflation refers to:

an increase in the purchasing value of a unit of currency, so goods and services are worth less.

A movie theater is an example of a:

club good

The role of the federal government in the economy has expanded at various times in history. Which of the following programs that expanded economic policy took place during the New Deal?

creation of the Social Security program

From 1817 to 1825, the state of New York constructed the Erie Canal to connect the Hudson River to Lake Erie. This created a waterway from the Atlantic Ocean to the Great Lakes, and the ensuing trade benefited large portions of the population. Construction of the Erie Canal was an example of what kind of policy?

distributive policy

Taxing and spending decisions by governments are part of:

fiscal policy.

Relative to other advanced industrialized democracies, the percentage of government spending in the United States that is done by subnational (state and local governments) is:

high.

Which economic philosophy advocates that the government take a noninterventionist approach to the economy, leaving market forces alone to determine the economic behavior of people and business firms?

laissez-faire

Relative to other countries, the U.S. debt as a percentage of GDP is:

moderate.

Governmental management of the supply of money in the economy, which affects prices, interest rates, and the availability of loans, is called:

monetary policy.

Studies have shown that property taxes affect owners of property more than renters of property. Given that wealthier people are more likely to own property, property taxes are:

progressive.

The Social Security program pays a base salary to retirees over the age of 67, which is financed by Federal Insurance Contributions Act (FICA) taxes collected from those who are currently employed. What is the most likely primary purpose behind this program today?

redistributing benefits

In 1994, then-chairman of the Federal Reserve Board Alan Greenspan raised interest rates, stating that doing so would reduce the risk of inflation. What policy purpose was he trying to fulfill?

stabilizing the economy

Monetary policy in the United States is controlled primarily by:

the Federal Reserve Board.

The national deficit is:

the difference in a given year between what the government raises in taxes and fees and what the government spends.

The gross domestic product (GDP) is:

the value of all of the goods and services produced by an economy within its borders.