Unit 6: Keeping the Economy on Track

Match the tools of the Federal Reserve Board with their description. 1. Fed raises or lowers the portion of deposits banks must keep and not lend out. 2. Fed buys and sells government bonds for the purpose of controlling the money supply and interest rates. 3. Fed increases money supply by buying securities on the open market. 4. Fed lowers or raises the discount rate for its largest member banks.

1. Fractional Reserve Rate 2. Open Market Operations 3. Quantitative Easing 4. Discount Rate

Match the term with its definition. 1. Loose money policy 2. Tight money policy

1. Policy used to stimulate economic growth by increasing the money supply 2. Policy used to slow down inflation by limiting the money supply

Match the tax category with its description. 1. everyone pays the a set percent regardless of income 2. the amount of tax one pays increase with income 3. takes a bigger "bite" out of the income of low income families

1. proportional 2. progressive 3. regressive

What is the fractional reserve rate shown in this diagram?

10%

During which year did the Federal Government have a surplus?

1985

Which policy should the Federal Reserve Board implement during a recession?

B

Which of the following scenarios is an example of the crowding out or competition impact of government spending?

Business at private tennis and golf clubs go down when the government builds a state of the art facility in the area.

Which of the following actions falls into the category of fiscal policy.

Congress ends the tax breaks for those in the top 1% of earnings.

Which of the following taxes is based on the benefits received principle?

Drivers pay a toll on Highway 400 until the road is paid for.

Which of the following statements best describes the impact of government expansionary policies?

Due to the fact that economic indicators need to decline for a period of time for a recession to be recognized, there is usually a lag time before government reacts to the indicators.

Which institution has the job of regulating the money supply in the US?

Federal Reserve Board

How does the chairman of the Federal Reserve Board get his job?

He is appointed by the President and approved by Congress.

Which of the following government actions could be used to slow down growth which is too rapid and leading to inflation?

Install a new federal sales tax of 5% on all goods and services except for food and prescription drugs

What is a frequent criticism of a sales tax?

It is a regressive tax.

Select all choices that apply. What are the goals of fiscal and all macroeconomic policies?

Low unemployment rate, stable prices, high and sustained economic growth

Why is a sales tax considered to be a regressive tax?

Poorer taxpayers spend a larger proportion of their income on taxable goods and services than do wealthy people so the tax impacts their disposable income more.

With which statement would a Keynesian economist agree?

Recessions and periods of inflation are part of capitalism and government should let the economy self regulate.

Why are the members of the Fed Board of Governors appointed for staggered 14 year terms?

To insulate them from day to day political party pressures.

When the government goes into deficit spending to stimulate the economy, it has to borrow more money. This borrowing may have a negative impact by

causing interest rates to rise due to increased demand.

If the federal government wants to encourage business and individuals to spend more money it should

decrease taxes.

Contractionary fiscal policy will have the effect of

decreasing aggregate demand (AD).

The US government contracts with Airy Airplanes to buy 100 new cargo planes for transporting troops and supplies. This action most relates to

expenditure

Decreasing taxes and increasing spending would have the effect of

increasing aggregate demand (AD).

What is the Federal Reserve Boards' primary source of income?

interest from government bonds

When the Fed raises the fractional reserve rate

less funds become available for lending by banks.

The main source of revenue for the federal government is

personal income tax.

Which of the following is usually a proportional tax?

property tax on homes and real estate

Food stamps, unemployment benefits, and Medicaid are examples of

proportional taxes.

When the Federal Reserve Board uses open market operations, it has decided to

raise or lower income taxes.

A few years ago tax payers received a tax rebate check from the Internal Revenue Services? These funds were distributed because

the government hoped to stimulate economic growth.

This graphic shows the

three main tools of fiscal policy that can be implemented by Congress.

During the Carter administration, the Chairman of the Federal Reserve Board, instituted a tight money policy in order to

to slow down the rate of inflation.