Econ Unit 4 – Flashcards
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The United States has always had an income tax.
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False
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How did economic events during World War II demonstrate the principles of Keynesian economics?
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As government spending increased, America came out of the Great Depression and moved toward higher productivity.
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If you lived on a fixed income, how would you be affected by inflation?
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You would be financially stressed because your income does not increase when prices go up.
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During the 1990s, the inflation and unemployment trends in the United States changed. What was unusual in the 1990s?
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Although inflation remained at less than three percent, unemployment fell to very low levels.
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According to the cost-push theory, what is responsible for inflation?
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Producers raise prices to meet increased costs.
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Which of the following is not a limit on the governments power to tax?
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taxes must be for indivindual interests only
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Government spending can be changed to help increase or decrease the output of the economy.
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True
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Why does aggregate demand go up when the money supply increases?
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interest rates go down allowing people to borrow more
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According to the demand-pull theory, what is responsible for inflation?
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Demand for goods and services exceeds existing supply.
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According to the video, lower interest rates increases investment demand for dollars because it becomes affordable for business to expand.
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True
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According to the video, Alan Greenspan has been the best Federal Reserve Board President to date.
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True
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Which two types of taxes provide the largest amount of revenue to states?
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sales taxes and individual income taxes
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The purpose of expansionary fiscal policy is to
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increase output.
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A tax on the amount of money a person earns
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individual income tax
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How do changes in interest rates affect the money supply?
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As interest rates rise, people generally keep their wealth in assets that pay returns, restricting the money supply.
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Why would you want to restrict economic output?
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to slow down inflation
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Enforcing the Antitrust laws could help lower cost-push inflation.
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True
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A tax for which the percentage of income paid in taxes decreases as income increases
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regressive tax
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What type of policy does the Fed use to counteract a contraction?
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lower intrest rates to encourage borrowing
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How could the Federal Reserve encourage banks to lend out more of their reserves?
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lower the required reserve ratio
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What do Social Security taxes pay for?
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benefits to older citizens, surviving family members of wage earners, and people with certain disabilities
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What is one important distinction between classical economics and Keynesian economics?
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Classical economics teaches that free markets regulate themselves, and Keynesian economics teaches that government action affects the economy.
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What is the cost of money?
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the price of the interest rate
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The purpose of monetary policy is to
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maintain a stable economy
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What is the major source of tax revenue for local governments?
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property taxes
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What is an entitlement?
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a social welfare program providing benefits to people who meet certain eligibility requirements
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The rate of how often a dollar exchanges hands
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velocity
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An example of expansionary fiscal policy would be
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cutting taxes.
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The Constitution places which two limits on the government's power to tax?
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Federal taxes must be for the common defense and general welfare, and they must be the same in every state.
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Expansionary policies try to lower aggregate demand to slow down the economy.
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False
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What do taxes collected under the Federal Insurance Contribution Act (FICA) fund?
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Social Security and Medicare
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A tax for which the percentage of income paid in taxes remains the same for all income levels
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proportional tax
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The purpose of monetary policy is to
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all that are listed
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A period of high inflation and high unemployment
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stagflation
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When interest rates rise
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companies borrow less money to invest in their business.
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Entitlement programs such as Social Security fall into what type of federal spending category?
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mandatory spending programs
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Monetary Policy is how the Federal Reserve controls the supply of money in the economy.
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False
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Much of the federal budget's mandatory spending is spent on
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entitlement funds like medicare
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When you buy a United States Savings Bond, you
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loan money to the government.
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Why does the Federal Reserve alter monetary policy?
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to lessen the effect of natural business cycles
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Who does the government owe money to?
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all that are listed
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Which of the following is considered a regressive tax?
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sales tax
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The multiplier effect shows
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that when the government spends money it is re-spent several more times
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Which of the following is not a contractionary fiscal policy?
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decreasing taxes
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Natural resources is the primary way that the government collects money.
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False
