Econ Unit 4

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

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