Module 5: Government & the Economy

Which of the following is an example of a good or service that would not be profitable for the private sector to provide because non-payers would reap the benefits as much as the payers would?

police protection

Government legal protection includes which of the following services? (choose all that apply)

protecting property rights enforcing contracts enforcing weights and measures

Goods that benefit non-payers as well as payers are called _____________.

public goods

In the United States, the bulk of spending by local and state governments goes to which of the following areas? (choose all that apply)

public welfare public safety public education road construction and repair

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

Which of the following is a way that governments combat the market failure of inequity?

redistributing income

A tax in which people with lower incomes pay a higher tax rate is called a(n) ___________.

regressive tax

In the United States, the bulk of spending by local and state governments goes to which of the following areas? (choose all that apply)

road construction and repair public education public safety public welfare

Which of the following is an example of a positive externality?

solar power

America's national debt rose from $5.5 trillion in 2000 to _________ by the end of 2019.

$23 trillion

The Tax Cuts and Jobs Act of 2017 changed the corporate income tax from 35% to __________.

21%

What percentage of student loans are given out by the government?

92%

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

Barack 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.

What happens when new capital and new labor are forcibly kept out of a particular industry?

Both capital and labor are less efficiently employed.

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.

Who is considered the founder of Austrian economics?

Carl Menger

According to Hazlitt, parity prices for agricultural products might increase the purchasing power of farmers and help them be more prosperous, but what would the effect be on city workers?

City workers will have their purchasing power reduced.

Which school of economic thought holds close to the theories of Adam Smith and believes that the prices of products are largely a function of how much they cost to produce?

Classical school

During the Great Recession, the federal government employed fiscal policy to try to stimulate the economy. Which of the following are examples of legislation that Congress passed to try to turn around the economy during the Great Recession? (choose all that apply)

Economic Stimulus Act of 2008 American Recovery and Reinvestment Act of 2009

Which organization protects the environment by establishing regulations that limit pollution?

Environmental Protection Agency

One major government service is building transportation infrastructure, such as roads and airports. The government also regulates this travel. Which of the following is a government organization that's responsible for regulating travel in the United States?

Federal Aviation Administration

What is the primary federal organization responsible for enforcing antitrust laws and preventing anti-competitive practices?

Federal Trade Commission

Which organization protects consumers by ensuring their food and medicines are safe?

Food and Drug Administration

What United States president initiated an unprecedented spending spree during the Great Depression?

Franklin D. Roosevelt

According to Hazlitt, what are the differences between loans provided by government agencies and loans provided by private lenders? (choose all that apply)

Government agencies will take more risks than private lenders. Private lenders risk their own money, whereas government agencies risk other people's money.

Short Answer: In one sentence, explain the economic consequences of people not being free to use their possessions as they choose.

If people are not free to use their possessions as they choose, they might not be able to act in a way that would increase efficiency and wealth.

What does the United States government do when the budget is in deficit?

It sells securities to individuals, corporations, financial institutions, and other governments.

Which school of economic thought believes that the best way to reduce the length and severity of recessions is by increasing aggregate demand through government intervention?

Keynesian school

What is the largest government healthcare program in the United States?

Medicare

Which school of economic thought was founded on the principles established by Milton Friedman?

Monetarist school

Which school of economic thought introduced the idea that consumers act rationally and attempt to maximize their marginal utility?

Neoclassical school

Which of the following are arguments made against OSHA? (choose all that apply)

OSHA's regulations disrupt the market forces of supply and demand. OSHA's regulations hurt both workers and consumers. OSHA creates many superfluous regulations that do little to improve worker safety.

What was the name of a 2011 movement that protested economic inequality?

Occupy Wall Street

Which of the following are reasons that private lenders are likely to make fewer mistakes than government lenders? (choose all that apply)

Private money will only be invested where repayment with interest or profit is expected. Private lenders are selected by a process of survival of the fittest. The money they're lending is their own or has been voluntarily entrusted to them.

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

Real wages are held down. Potenial entrepreneurs Consumers are prevented from getting better and cheaper products. People are deterred from starting new enterprises. Existing businesses don't give new employment.

What was the first federal law to make trusts illegal?

Sherman Antitrust Act of 1890

FICA tax is a payroll tax that funds which of the following government programs? (choose all that apply)

Social Security Medicare

Which of the following taxes are considered regressive taxes? (choose all that apply)

Social Security payroll tax sales tax

The most famous work written by John Maynard Keynes was _______________.

The General Theory of Employment, Interest, and Money

According to Hazlitt, what were the main arguments for parity prices for agricultural products? (choose all that apply)

The prosperity of everybody else depends upon the prosperity of the farmer. If the farmer doesn't have enough purchasing power to buy industrial products, then the industry will suffer. Agriculture is the most basic and important of all industries.

Short Answer: In one sentence, define the term deficit.

The term deficit refers to a budget in which expenditures exceed revenues.

Short Answer: In one sentence, define the term excise tax.

The term excise tax refers to a tax that is levied when an item is produced.

Short Answer: In one sentence, define the term expansionary fiscal policy.

The term expansionary fiscal policy is characterized by increased government spending and a decrease in taxes.

Short Answer: In one sentence, define the term negative externality.

The term negative externality refers to an externality in which individuals with no control over creating a cost have to pay for the cost.

Short Answer: In one sentence, define the term property rights.

The term property rights refer to the legal rights of an individual to use their property as they choose.

Short Answer: In one sentence, define the term surplus.

The term surplus refers to a budget in which revenues exceed expenditures.

Why does Hazlitt say that advocates of parity pricing for farmers picked the years 1909-1914 as the basis of parity?

The years were one of the most favorable periods for agriculture in history.

According to Hazlitt, which of the following are true, in general, about the individuals selected for government loans? (choose all that apply)

There will be a higher percentage of failures, or defaults, on these loans. They will be poorer risks than the individuals selected for private loans. More money will be lost by loans to these individuals.

Which special interest group spent the most money lobbying the American government in 2018?

US Chamber of Commerce

Why is contractionary monetary policy rarely used?

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

Each year, the finer points of America's federal budget are first debated in twelve _____________.

appropriations committees

What is price stickiness?

a condition in which market prices change slowly in reaction to changes in supply and demand

Austrian economists argue that contractionary phases are made worse by government intervention because that intervention results in _______________.

a malinvestment of capital

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

asset bubbles unsustainability

Keynesian economists believe that decreased __________ is the main cause of recessions.

aggregate demand

Which of the following are principal areas of focus for the Keynesian school of economics? (choose all that apply)

aggregate demand price stickiness

A legal agreement enforceable by law is called a __________.

contract

Those who advocate for government lending believe that extending credit to individuals will help them prosper. However, an important point these advocates of government lending forget is that all credit is _________.

debt

When a borrower stops making payments on their loan for several months, the loan is considered to be in __________.

default

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

diversion of jobs

Emergency services provided by the government include which of the following services? (choose all that apply)

emergency medical services police protection firefighting

Which of the following taxes are considered progressive taxes? (choose all that apply)

federal income tax

Which of the following are consequences of the government getting deep into debt? (choose all that apply)

fewer economic opportunities less fiscal flexibility

What is the solution for the market failure of public goods?

government control over public goods

What is a failure that occurs when the cost of solving a market failure is greater than the benefit?

government failure

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

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

high inflation increased government debt

The Great Recession was partially caused by an asset bubble in the ________ market.

housing

In the United States, state governments are mostly funded by which of the following types of taxes? (choose all that apply)

income taxes sales taxes

Keynesian economists use the idea of price stickiness to defend their policies of ___________.

increased government spending and an expanded money supply

Firefighting is an example of a government service that could be provided by the private sector. However, firefighting services are operated by the government because _____________.

it's more beneficial to society for firefighting services to be provided to everyone

One consequence of high government debt 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)

less tax revenue slower economic growth increased debt increased deficits

The sum total of all the money the government owes is referred to as the __________.

national debt

Hazlitt writes that the "pleasant dreams" of 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

The government operates many public buildings, such as libraries and courthouses, as well as many public _____, including Yellowstone and Yosemite.

parks

Taxes on imported goods are called ______________.

tariffs

In the United States, the federal government is mostly funded by which of the following types of taxes? (choose all that apply)

tariffs corporate income taxes fees individual income taxes payroll taxes excise taxes

Which of the following describes the concept of parity pricing in the 1930s and 1940s?

the desire to raise the prices of agricultural products to "parity" with the prices of the products that the farmer buys

According to Hazlitt, the fact that parity pricing for agricultural products was "merely a device for subsidizing a special interest" is proven by which of the following? (choose all that apply)

the refusal to universalize the principle of parity pricing When agricultural prices go above "parity," there is no demand that the prices be decreased back to "parity."

According to Hazlitt, the belief that government loans for farmers are beneficial comes from which of the following "acts of shortsightedness"? (choose all that apply)

thinking only of the first half of the transaction looking at the matter only from the standpoint of the farmers that borrow

Which of the following are reasons why governments redistribute wealth? (choose all that apply)

to create a safety net and help impoverished citizens who are in need to satisfy individuals and groups who aren't satisfied with the current distribution of income in the economy

The major excise taxes in the United States are on which of the following products? (choose all that apply)

tobacco gasoline alcohol

In the United States, government welfare services include which of the following programs? (choose all that apply)

unemployment benefits public housing food stamps

According to Steven Horwitz, the theories of Austrian economics emerge from _________________.

what we can know empirically about human beings