Economic Policy
Economists consider the natural rate of unemployment to be around:
5 to 5.5 percent.
Why are monopolies a problem sometimes?
A business can raise prices without fear of losing customers to competitors.
Why did the Justice Department drop its 1998 antitrust lawsuit against Microsoft?
A new president was elected and he decided not to press the case.
What is the relationship between the relative strength of the dollar and imports and exports from the country?
A stronger dollar means more imports and less exports.
________ was the Federal Reserve chairman during the 2008-2009 banking crisis.
Ben Bernanke
While debating the budget, Congress often seeks advice from an independent agency called the:
Congressional Budget Office.
Which economist expanded on the idea of trade and protectionism in an 1817 book?
David Ricardo
Which government organization negotiates economic agreements with foreign countries on behalf of the president?
Foreign Relations Council
When Congress and the president agree on federal budgets that run significant deficits over many years, what are the likely economic consequences?
Interest rates might have to increase to attract investors to buy government bonds and securities.
What was the result of the Budget and Accounting Act of 1921?
It allowed the president to play a central role in the budget process.
Why is the Securities and Exchange Commission important in a free-market economy?
It helps provide oversight to ensure transparent capital markets.
Countercyclical taxing and spending policy is known as:
Keynesian economics.
Which agency is housed in the executive branch and advises the president on economic policy making?
National Economic Council
Which agency works with the president to compose the nation's annual budget?
Office of Management and Budget
What is a common criticism of regulation?
Regulations limit job growth.
To combat the problem of stagflation in the 1970s, President Richard Nixon implemented a policy of wage and price controls. While Nixon's actions ultimately failed, they illustrate a larger point, which is that:
Republicans are generally more concerned about inflation than full employment.
Which of the following constitutes the highest portion of expenditures in the national budget?
Social Security and Medicare combined
What is a major criticism of the Fed?
The Fed can make decisions that damage the economy, and voters have little recourse to hold members of the Fed accountable.
What does the gross domestic product (GDP) measure?
a country's economic output and activity
The chair of the Federal Reserve System serves:
a four-year term that can be renewed by the president and the Senate.
According to the monetarist theory of macroeconomic policy:
a recession can result when there isn't enough money in the system.
In recent years, what has been the status of the U.S. trade balance?
a record-setting deficit
What is a negative externality?
a situation in which a firm produces more of an unwanted good than is socially desirable
What is an example of mandatory spending in the federal budget?
an entitlement program such as Social Security
What is it called when government spending is equal to its revenue?
balanced budget
The reserve requirement requires:
banks to have a certain amount of money on hand to back up their assets.
Regulatory "capture" refers to instances in which:
bureaucratic agencies are controlled by the industries they directly affect.
During the Reagan presidency, taxes and spending fell as a share of the overall economy. What was the result?
continued budget deficits and a significant increase in the nation's federal debt
What did the Employment Act of 1946 do?
created the Council of Economic Advisers and made full employment a goal of economic policy
The balance between a nation's receipts and its payments in international trade and investment is called a(n):
current account.
Under a protectionist policy of importing and exporting goods, the United States would:
decrease the number of imports by implementing trade sanctions, tariffs, and quotas.
The specific interest rate that banks pay to the Federal Reserve Bank for short-term loans is called a(n):
discount rate.
When the economy goes into a deep, widespread, and prolonged downturn, it is called an:
economic depression.
The ________ is the total accumulation of money borrowed by the government.
federal debt
The specific interest rate that banks pay each other for emergency overnight loans is called a(n):
federal funds rate.
Taxing and spending decisions are known as ________ policy.
fiscal
A trade deficit is determined by measuring the difference between a nation's ________ and its ________.
imports; exports
If inflation starts to increase, the Federal Reserve is likely to:
increase interest rates.
The logic behind lowering interest rates is to:
increase the amount of money being borrowed.
Which of the following is the most significant source of revenue for the federal government?
individual income taxes
When there is too much money flowing and too few goods, it is likely to lead to:
inflation.
What does the Federal Deposit Insurance Corporation (FDIC) do?
insures all bank deposits up to $250,000
An omnibus reconciliation bill:
is a single, comprehensive budget bill that cannot be filibustered in the Senate.
The Office of Management and Budget (OMB) plays an important role in the federal budget-making process because it:
is ultimately responsible for putting together the president's budget.
One major critique of relying on the GDP to measure economic success is that:
it fails to capture a decline in well-being, as measured by sales of such products as alarms in our homes.
Inflation can become a major economic problem for all of the following reasons EXCEPT:
it makes it more difficult for people to repay their debts.
Regarding trade policy, Democrats generally represent ________, while Republicans generally represent ________.
labor; capital
Large federal budget deficits are a concern for all of the following reasons EXCEPT:
large deficits discourage people from spending money, which slows the economy.
In 2002, Congress decided not to honor the pay-as-you-go (PAYGO) procedure because:
large funds were needed for the war on terror and the Iraq war.
A weak U.S. dollar makes U.S. goods ________, which, in theory, should ________ the U.S. trade deficit.
less expensive; reduce
Which of the following positive trade-offs do people usually associate with free trade?
lower prices on consumer goods
Market failures sometimes lead to social regulation, particularly when the costs of a firm's behavior are not entirely borne by the firm but are passed on to other people. These failures are known as:
negative externalities.
Decisions made by the Federal Reserve System (or the Fed) are:
not politically influenced because the agency is independent.
The Sherman Antitrust Act was passed in 1890 to break up which corporate monopoly?
oil
How is America's trade deficit primarily financed?
overseas borrowing
Economist Arthur Laffer, who developed the Laffer curve, believed that if taxes are raised drastically:
people will work less because too much of their income will go to the government.
Which of the following is an example of a negative externality?
power plants producing pollution as a side effect of energy production
If the Fed wanted to put downward pressure on the FFR, it would likely:
purchase government bonds from banks.
Which of the following negative trade-offs do people usually associate with free trade?
reduction in American jobs
A tax that takes a larger share of poor people's income than wealthy people's income is known as a ________ tax.
regressive
The Federal Reserve Board has ________ members, who are appointed by the president.
seven
When the economy goes into a deep, widespread, and prolonged downturn, it is called an:
strength of the dollar compared to other currencies
The theory that lowering taxes will stimulate the economy because of increased investment and spending among the public is called:
supply-side economics.
During the nation's recent economic crisis, what would a proponent of Keynesian economics have done?
supported the government's entire $787 billion stimulus plan of tax cuts and government spending
During the nation's recent economic crisis, what would a proponent of supply-side economics have done?
supported the stimulus plan's tax cuts but not the increases in government spending
Tax policy is inherently conflictual because:
tax policy often involves redistributing money from one group to another.
All of the following statements about the Fed are true EXCEPT:
the Fed's primary directive is to keep interest rates low.
A "natural" monopoly occurs because:
the costs are so high to enter a specific business that only one company in the market can be profitable.
Which of the following is an example of a progressive tax?
the income tax
The Misery Index is based on:
the sum of the inflation rate and the unemployment rate.
Since 1933, money is based on:
the trust and confidence in the banking system.
If the Fed provided additional credit when the economy was expanding and reduced credit when businesses were not expanding, the result would be:
the worsening of the economy, because it would choke off the supply of money when it was needed most.
Which of the following is a responsibility of the Treasury Department?
to collect taxes, duties, and money due to the United States
When the flow of money is tight, the price of short-term loans will be bid ________ and the federal fund rate (FFR) will ________.
up; rise
