Econ Unit 6 Review – Flashcards

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The Required Reserve Ratio is 10 percent. The money multiplier is
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10.
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All of the following are constitutional limits on the power to tax EXCEPT that
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exports must not be taxed.
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How quickly can an increase in government spending increase the gross domestic product?
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6 months
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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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The main source of funding for your school probably comes from
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local property taxes.
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What is the cost of money?
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the price of the interest rate
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Who generally bears most of a sales tax when the demand for the good taxed is inelastic?
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the consumer
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What do Social Security taxes pay for?
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The benefits to older citizen, surviving family members of wage earners, and people with certain disabilities.
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Which of the following is one way the Federal Reserve Bank serves the government?
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selling government securities
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Suppose the required reserve ratio is 20 percent. A $5 million deposit allows commercial banks to create as much as
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$25 million
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Why does a bank sometimes hold excess reserves?
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to be sure they can meet their customers' demands
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The Laffer curve predicts the effects of changes in the tax rate on
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tax revenues.
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The President has vetoed several appropriations bills. What is the next step in the budget process?
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Congress can vote to override the vetoes or pass new appropriations bills that the President is likely to sign.
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When revenues exceed expenditures,
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there is a budget surplus.
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How many Federal Reserve Districts are there?
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12
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Your department store receipt says that you paid a 5% sales tax on sports equipment. This sales tax is an example of a
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regressive tax.
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When you drive away from the gas pump, you have just paid a(n)
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excise tax.
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Which of the following is one reason the federal government collects income taxes as a person earns?
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so that the government can pay bills as they come due
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The most-used instrument for controlling week-to-week changes in the money supply is
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open market operations.
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What happens to the money that your employer withholds from your paycheck?
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Your employer sends it to the federal government to help pay your income tax bill.
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As commercial banks keep more excess reserves, money creation
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decreases.
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What type of policy does the Federal Reserve use to counteract an expansion that is causing high interest rates?
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tight money policy
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The purpose of expansionary fiscal policy is to
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increase output.
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What effect would an increase in the discount rate have on the money supply?
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It would cause the money supply to contract.
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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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An accurate statement about achieving a balanced budget would be that
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most states require a balanced budget for state spending.
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Which of these is an example of inside lag in monetary policy?
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Members of the Board of Governors disagree on the state of the economy and refuse to lower the discount rate until several months after a recession has begun.
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Which of these is a contractionary fiscal policy?
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The President and Congress pass a new two-cent-per-gallon gasoline tax.
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Which of the following is an example of state spending?
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all of the above
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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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Which statement describes the federal government's fiscal policies in the 1980s?
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Income tax rates were reduced, but spending increased.
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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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Why makes increased government spending an effective tool for increasing demand?
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the multiplier effect
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An example of contractionary fiscal policy would be
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decreasing government spending.
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Congress has just passed several bills outlining the federal budget. What is the next step in the budget process?
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The President signs the budget into law or vetoes it and sends it back to Congress.
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All of the following are problems associated with high national debt EXCEPT that it
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makes investing in treasury bonds, notes, and bills very risky.
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How did the Great Depression relate to the school of classical economics?
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The Great Depression appeared to disprove the classical theory that demand and supply could return to a healthy equilibrium through market forces alone.
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All of the following are reasons why it is difficult to put balanced fiscal policy into practice EXCEPT
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the need for discretionary spending.
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In contrast with classical economics, Keynesian economics
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takes a broader view of the economy.
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If the money multiplier is 4, the required reserve ratio is
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25 percent.
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All of the following are characteristics of classical economics EXCEPT
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a significant role for government in the running of the economy.
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The sales tax on a $20.00 hammer is 7%, or $1.40. Why is this tax a bigger burden for Josh, who has a $15,000 income, than for Aaron, who has a $150,000 income?
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The tax represents a larger proportion of Josh's income.
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What is a major difference between an operating budget and a capital budget?
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An operating budget is for day-to-day expenses; a capital budget is for investment spending.
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What type of policy does the Fed use to counteract a contraction?
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easy money policy
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Which is an example of discretionary spending?
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education
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Supporters of supply-side economics believe that
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taxes have a strong negative influence on economic output.
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Robin buys a newly-issues Treasury bond, Treasury note, and Treasury bill. Which will mature and be repaid by the government LAST?
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Treasury bond
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The federal government's Fiscal Year 2007 begins on
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October 1, 2006.
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What is one example of an automatic stabilizer?
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food stamps
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All but which of the following may be claimed as a tax deduction?
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money spent on household expenses
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Which of the following instruments is NOT used by the Federal Reserve to change the money supply?
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the federal tax code
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Which of these situations is most likely to cause the Fed to introduce a tight money supply?
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The economy is expanding quickly and inflation is a concern.
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The Office of Management and Budget
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is responsible for deciding how much money each government agency receives in the budget.
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An example of an automatic stabilizer is
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taxes.
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Which of these Presidents increased top marginal income tax rates during his term in office?
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Franklin D. Roosevelt
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What is one possible short-term effect of an easy money policy?
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increased investment spending
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What does "lender of last resort" mean with respect to the Federal Reserve?
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It will lend money to a bank in a financial emergency.
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Which of these tools in an example of monetary policy?
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changing reserve requirements
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What was one reason the U.S. government started a Federal Reserve system?
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to provide consumers with access to funds for business expansion
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Which of the following defines a means-tested program?
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Eligibility depends on income.
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What leads directly to the crowding-out-effect?
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a big federal budget deficit
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What will lead DIRECTLY to a government "shut down"?
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The President vetoes Congress's appropriations bills.
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The national debt rose during Ronald Reagan's term as President for all of the following reasons EXCEPT
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the costs of running a war.
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Suppose your total taxable income this year is $75,000. You are taxed at a rate of 10% on the first $25,000, 20% on the next $25,000, and 30% on the final $25,000. What is your total income tax?
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$15,000
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The federal government spends the largest amount of its budget on Social Security, which is an example of
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mandatory spending.
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Which of these statements is a fundamental part of supply-side economics?
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The government should reduce taxes to promote economic growth by increasing aggregate supply.
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How well did the Federal Reserve Banks perform during the Great Depression?
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Individual governors of the Federal Reserve Banks disagreed over policy and were unable to stop the depression.
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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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Keynesian economics failed to deal successfully with
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high inflation during the 1970s.
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The federal budget is put together
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by Congress and the White House.
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