ECON TEST 4

From 2008 to 2010, U.S. federal government spending increased to about A) 20 percent of GDP B) 25 percent of GDP C) 15 percent of GDP D) 30 percent of GDP

B) 25 percent of GDP

Originally the alternative minimum tax was supposed to A) help low-income households with more than two children B) ensure a minimum tax payment among superrich households C) decrease taxes amongst the middle-class to the minimum level D) alleviate the tax burden for low-income households

B) ensure a minimum tax payment among superrich households

As the baby boomer generation retires, Social Security payments will have to increase approximately ______ in order to maintain the level of promised benefits A) 40 percent B) 55 percent C) 25 percent D) 10 percent

A) 40 percent

In 2008 taxpayers used approximately ______ of their tax rebate checks to reduce their current debt instead of increasing their spending A) 80 percent B) 10 percent C) 20 percent D) 45 percent

A) 80 percent

U.S. currency is printed by the A) The U.S. Department of the Treasury B) The President's Council for Economic Advisors C) The Federal Reserve D) The Comptroller of the Currency

A) The U.S. Department of the Treasury

Open market operations occur when the Fed A) buys and sells government bonds B) changes the rate of interest paid on reserves C) changes the discount rate on lending to banks D) sets up the term auction facility

A) buys and sells government bonds

Paying a higher interest rate on reserves held at the Fed will tend to A) decrease the money supply B) have an ambiguous effect on the money supply C) not change the money supply D) increase the money supply

A) decrease the money supply

What are the three main sources of funds for the U.S. federal government A) individual income taxes, corporate income taxes, and social security and medicare taxes B) interest on government bonds, individual income taxes, social security and medicare taxes C) interest on government bonds, corporate income taxes, social security and medicare taxes D) interest on government bonds, individual income taxes, corporate income taxes

A) individual income taxes, corporate income taxes, and social security and medicare taxes

Which of the following is regarded as a policy rule? A) keeping the money supply growth rate consistent with a given inflation rate B) adjusting policy actions to deal with the nature of the economic shocks C) changing the money supply growth with discretion D) making policy on the fly

A) keeping the money supply growth rate consistent with a given inflation rate

Because the United States has a fractional reserve banking system, banks must hold A) less than 100 percent of deposits as reserves B) more than 100 percent of deposits as reserves C) 100 percent of deposits as reserves D) no currency in their vaults

A) less than 100 percent of deposits as reserves

An increase in government spending causes A) the aggregate demand curve to shift to the right B) an upward movement along the aggregate demand curve C) the aggregate demand curve to shift to the left D) a downward movement along the aggregate demand curve

A) the aggregate demand curve to shift to the right

The macroeconomic case for government spending is strongest when A) the government faces some immediate emergency B) national infrastructure is significantly depreciated C) the economic performance is sluggish D) private spending is lagging

A) the government faces some immediate emergency

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between A) too low a rate of growth or too high a rate of inflation B) too high a rate of growth or too low a rate of inflation C) too high a rate of growth or too high a rate of inflation D) too low a rate of growth or too low a rate of inflation

A) too low a rate of growth or too high a rate of inflation

U.S. government spending on Social Security, defense, Medicare, and Medicaid makes up almost A) 33 percent of federal government spending B) 67 percent of federal government spending C) 50 percent of federal government spending D) 25 percent of federal government spending

B) 67 percent of federal government spending

Which of the following is NOT true of the Federal Reserve System? A) It serves as the bankers' bank B) It carries out policies passed by the federal government C) It maintains the bank account of the U.S. Treasury D) It regulates the nation's money supply

B) It carries out policies passed by the federal government

Fiscal policy lags A) are generally the same length as monetary policy lags B) are generally longer than monetary policy lags C) may be shorter or longer than monetary policy lags D) are generally shorter than monetary policy lags

B) are generally longer than monetary policy lags

If the Federal Reserve overstimulates the economy by increasing money growth by too much, then inflation will A) bring the economy into a recession B) create arbitrary redistribution of wealth C) make price signals much easier to interpret D) make long-term planning and contracting easier

B) create arbitrary redistribution of wealth

Fiscal policy refers to the change in A) interest rates that affect the credit markets B) government spending or taxes in an attempt to influence the overall economy C) the money supply in an attempt to raise the standard of living D) government regulations that affect the level of market competition

B) government spending or taxes in an attempt to influence the overall economy

The tax rate paid on an additional dollar of income is called the A) average tax rate B) marginal tax rate C) last tax rate D) total tax rate

B) marginal tax rate

Social Security is run on a ______ basis A) contract B) pay-as-you-go C) trust fund D) prepaid

B) pay-as-you-go

The Fed uses each of the following to control the money supply EXCEPT A) paying an interest rate on bank reserves held at the Fed B) prime interest rate lending C) open market operations D) discount rate lending

B) prime interest rate lending

The advocates of discretion for the Fed's role think that the Fed's adjustments on average push the economy in the A) right direction and increase GDP volatility B) right direction and lower GDP volatility C) wrong direction and lower GDP volatility D) wrong direction and increase GDP volatility

B) right direction and lower GDP volatility

The second-largest source of revenue for the U.S. federal government is A) excise taxes, such as taxes on gasoline and alcohol B) social security and medicare taxes C) the individual income tax D) the corporate income tax

B) social security and medicare taxes

A bank becomes insolvent when the A) value of a bank's loans rises so rapidly and exceeds the value of its deposits B) value of a bank's loans falls so far that the bank can no longer pay back its depositors C) bank's assets are greater than its liabilities D) bank's assets are less than those of other banks

B) value of a bank's loans falls so far that the bank can no longer pay back its depositors

The effective reserve ratio is determined primarily by A) The number of bank employees B) How greedy banks wish to be C) How liquid banks with to be D) The size of banks' vaults

C) How liquid banks with to be

The money multiplier (MM) is the A) ratio of reserves to deposits B) ratio of deposits to reserves C) amount of money the money supply expands with each dollar increase in reserves D) overnight lending rate from one major bank to another

C) amount of money the money supply expands with each dollar increase in reserves

The time it takes Congress to propose and pass a plan for fiscal policy is called the A) recognition lag B) effectiveness lag C) legislative lag D) adjustment lag

C) legislative lag

Moral hazard occurs when banks and other financial institutions A) hesitate to lend due to concern over excessive risk B) fail to maintain their assets exceeding the liabilities C) take too much risk, hoping that the Fed and regulators will bail them out D) fail and bring down other institutions in the system

C) take too much risk, hoping that the Fed and regulators will bail them out

Social Security and Medicare primarily transfer wealth to A) the poor B) the children C) the elderly D) the unemployed

C) the elderly

The Fed's power to influence aggregate demand is constrained by A) the president and Congress B) the significant amount of U.S. dollars held in foreign reserves C) uncertainty and an inability for everyone to fully understand the complexity of the economy D) contracting fiscal policy

C) uncertainty and an inability for everyone to fully understand the complexity of the economy

Quantitative easing occurs when the A) government raises income and other taxes B) Fed sells long-term securities C) government lowers income and other taxes D) Fed buys long-term securities

D) Fed buys long-term securities

If the Fed wishes to lower interest rates, it should A) conduct an open market sale B) raise the discount rate C) do nothing D) conduct an open market purchase

D) conduct an open market purchase

Ideal fiscal policy will A) decrease aggregate demand in bad times and pay off the bills in good times B) increase aggregate demand in good times and pay off the bills in bad times C) decrease aggregate demand in good times and pay off the bills in bad times D) increase aggregate demand in bad times and pay off the bills in good times

D) increase aggregate demand in bad times and pay off the bills in good times

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising A) output growth B) unemployment C) solow growth D) inflation

D) inflation

Government spending in the United States is A) not likely to fall in the future, given the rising interest payments on the national debt B) likely to fall in the future, given the cyclical nature of business cycles C) likely to fall in the future, given the consciousness of the American people regarding our growing debt D) not likely to fall in the future, given the aging population

D) not likely to fall in the future, given the aging population

Government spending as a percentage of GDP in the United States today is A) about average as compared to other developed countries B) comparable to countries like Germany, the Netherlands, and Italy C) larger than any other developed country in the world D) one of the smallest among developed countries

D) one of the smallest among developed countries

Nearly one-third of the total U.S. national debt is held by A) private citizens B) China C) the Federal Reserve D) other agencies in the federal government

D) other agencies in the federal government

Suppose that the unemployed are mostly construction workers by profession. Which government spending project will most effectively target unused labor resources? A) investing in research on solar energy B) better funding for medical care for the elderly C) increasing teacher quality D) renovating the nation's highway system

D) renovating the nation's highway system

The largest source of revenue for the U.S. federal government is A) excise taxes, such as taxes on gasoline and alcohol B) the corporate income tax C) social security and medicare taxes D) the individual income tax

D) the individual income tax