question

The use of government spending and revenue collection to influence the economy:

answer

Fiscal policy.

question

A plan for the federal government's revenues and spending for the coming year:

answer

Federal budget.

question

Twelve-month period that can begin on any date:

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Fiscal year.

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Government office that manages the federal budget:

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Office of management and budget (OMB).

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Government agency that provides economic data to Congress:

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Congressional budget office (CBO).

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A bill that sets money aside for specific spending:

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Appropriations bill.

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What role does the Office of Management and Budget (OMB) play in creating the federal budget?

answer

The Office of Management and Budget (OMB) is the part of the Executive Office of the President that prepares the federal budget based on spending proposals received from federal agencies.

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What is the role of the Office of Management and Budget (OMB)? to manage the collection of all U.S. taxes. (B) To make compromises between the federal and state budgets. (C) To manage the federal government's budget. (D) To suggest new rules for the Internal Revenue Service.

answer

C

question

What is the purpose of "stop-gap funding"? (A) To keep the government running when the budget has not been approved. (B) To stop the spending of unnecessary funds when money is being wasted. (C) To close gaps in the funding when there is an unexpected expense. (D) To make sure there is enough money to pay the government's bills when the budget is finished.

answer

A

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Fiscal policies, like higher spending and tax cuts, that encourage economic growth:

answer

Expansionary policies.

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Fiscal policies, like lower spending and higher taxes, that reduce economic growth:

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Contractionary policies.

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What are two types of expansionary policies?

answer

Increasing government spending and cutting taxes.

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Which of the following is an example of expansionary fiscal policy? (A) Cutting government spending (B) Cutting production of consumer goods (C) Cutting prices of consumer goods (D) Cutting taxes

answer

D

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Why does the government sometimes use an expansionary fiscal policy? (A) To control the demand for consumer goods and services. (B) To slow down the economy because fast-growing demand can exceed supply. (C) To encourage growth and try to stop or prevent a recession. (D) To expand the government's control over nondefense spending.

answer

C

question

"Coordinating fiscal policy," one of the five limits of fiscal policy, can be difficult because _____. (A) Economists often disagree about the meaning of certain statistics. (B) State and local government policies might interfere with the intended outcome of federal policies. (C) Government officials might take a long time to put these policies into effect. (D) Government spending changes must come from the limited funds of discretionary spending.

answer

B

question

All of the following are reasons why it is difficult to implement balanced fiscal policy except _____. (A) Difficulty of coordinating the needs of many different agencies. (B) The need for discretionary spending. (C) Political pressures for reelection. (D) Difficulty of predicting future economic performance.

answer

B

question

What will lead directly to a government "shut down"? (A) When the President vetoes Congress's appropriations bills. (B) When government spending exceeds revenues before the end of the fiscal year. (C) When Congress and the President cannot agree on temporary funding. (D) When Congress fails to override a presidential veto.

answer

C

question

Which of the following is a contractionary fiscal policy? (A) The sales tax on clothing is lifted for one week before the school year begins. (B) The federal government sends taxpayers up to $300 each in the form of an income tax rebate. (C) The President and Congress pass a new 2-cent-per-gallon gasoline tax. (D) The federal government builds a new medical research center at a prestigious state university.

answer

C

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Why is it difficult for the federal government to increase or decrease spending? (A) Taxpayers and citizens get upset when the government decides to stop paying for something. (B) Different states may have different goals, so they may not agree with the monetary changes. (C) Most government officials are reluctant to authorize any changes in spending. (D) Two-thirds of all government spending is on entitlements, which the government cannot easily alter.

answer

D

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The purpose of expansionary fiscal policy is to _____. (A) Increase output. (B) Prevent hyperinflation. (C) Slow the growth of the GDP. (D) Increase the separation between government and private industry.

answer

A

question

The federal budget process begins with _____. (A) Appropriations bills (B) Federal agency estimates (C) The Congressional Budget Office (D) Congress

answer

B

question

The federal budget is put together _____. (A) By Congress and the White House. (B) Every other year. (C) To report to Congress on the preceding year's expenditures. (D) To reimburse state governments for costs of federally funded programs.

answer

A

question

The Office of Management and Budget (OMB) is part of the _____. (A) Senate (B) Executive Office of the President (C) House of Representatives (D) Judicial Branch

answer

A

question

What is the purpose of "stop-gap funding"? (A) To make sure there is enough money to pay the government's bills when the budget is finished. (B) To keep the government running when the budget has not been approved. (C) To stop the spending of unnecessary funds when money is being wasted. (D) To close gaps in the funding when there is an unexpected expense.

answer

B

question

How can Congress prevent the federal government from a "shut down" if the fiscal budget process is incomplete? (A) Call an emergency Congressional Budget Office (CBO) meeting to discuss a temporary budget. (B) Pass legislation known as "stop-gap funding" to keep the government running. (C) Pass legislation known as an appropriations bill to keep the government running. (D) Send representatives to meet with the Office of Management and Budget (OMB) to request emergency funding.

answer

B

question

The idea that free markets can regulate themselves:

answer

Classical economics.

question

Maximum output that an economy can produce without big increases in inflation:

answer

Productive capacity.

question

A school of economics that believes government spending and tax cuts help an economy by raising demand:

answer

Demand-side economics.

question

Form of demand-side economics that encourages government action to increase or decrease demand and output:

answer

Keynesian economics.

question

The idea that every dollar of spending creates more than one dollar in economic activity:

answer

Multiplier effect.

question

Government program that changes automatically depending on GDP and a person's income:

answer

Automatic stabilizer.

question

After the fall of the economy in 1929, what did classical economists believe to be the solution to the Great Depression? (A) Wait for the economy to achieve equilibrium. (B) Increase government spending. (C) Cut taxes to promote growth. (D) Stimulate the economy through fiscal policies.

answer

A

question

Which of the following is an example of an automatic stabilizer? (A) Inflation (B) Taxes (C) Interest rates (D) U.S. savings bonds

answer

B

question

A school of economics that believes tax cuts can help an economy by raising supply:

answer

Supply-side economics.

question

How do Keynesian economics and supply-side economics compare and contrast?

answer

Keynesian economics uses government to increase aggregate demand through both spending and tax cuts. Supply-side economics tries to increase aggregate supply through tax cuts.

question

What do supporters of supply-side economics believe? (A) That demand for goods increases when prices rise. (B) That tax cuts have little impact on worker productivity. (C) That government should be used as a tool to increase demand for goods. (D) That taxes have a strong negative influence on economic output.

answer

D

question

The Laffer curve predicts the effects of changes in the tax rate on which of the following? (A) Unemployment (B) Real GDP (C) Aggregate supply (D) Tax revenues

answer

D

question

Group of three respected economists who advise the President on economic policy:

answer

Council of economic advisers (CEA).

question

Keynesian economics failed to deal successfully with _____. (A) World War II. (B) High inflation during the 1970s. (C) The Great Depression. (D) Low unemployment rate during the 1960s.

answer

B

question

Which of the following Presidents increased top marginal income tax rates during his term in office? (A) George W. Bush (B) Ronald Reagan (C) Franklin D. Roosevelt (D) John F. Kennedy

answer

C

question

In contrast with classical economics, Keynesian economics _____. (A) Takes a broader view of the economy. (B) Reduces the role of government. (C) More strongly emphasizes the importance of individual businesses to the overall health of the economy. (D) Relies more heavily on the laws of supply and demand.

answer

A

question

Which of the following statements is a fundamental part of supply-side economics? (A) The economy will only reach equilibrium and prosperity through the self-regulation of the free market. (B) The federal government should have a balanced budget every year to protect economic growth. (C) The government should reduce taxes to promote economic growth by increasing aggregate supply. (D) The government can use deficit spending to increase aggregate demand and pull the economy out of recession.

answer

C

question

Which economic school of thought would explain how massive government expenditures during World War II sharply moved the country out of the Great Depression? (A) Classical economics (B) Supply-side economics (C) Council of Economic Advisors (D) Keynesian economics

answer

D

question

What does experience show about the relationship of taxation and work? (A) A tax cut does not cause employers to raise wages significantly. (B) When taxes are cut, workers work significantly more hours. (C) When taxes are raised, workers work significantly more hours. (D) A tax cut does not cause workers to work significantly more hours.

answer

D

question

John Maynard Keynes believed that to end the Great Depression, government should _____. (A) Spend and buy more goods and services (B) Lower taxes (C) Allow the markets to regulate themselves (D) Raise taxes

answer

A

question

Which of the following statements is a fundamental part of Keynesian economics? (A) The federal government should have a balanced budget every year to protect economic growth. (B) The government can use deficit spending to increase aggregate demand and pull the economy out of recession. (C) The economy will only reach equilibrium and prosperity through the self-regulation of the free market. (D) The government should reduce taxes to promote economic growth by increasing aggregate supply.

answer

B

question

In the 1930s, what problem did the Great Depression highlight that classical economics did not address? (A) How often such an event would happen worldwide. (B) How long the market would take to return to equilibrium. (C) How many people would lose their jobs or homes. (D) How much the government should spend to revive the economy.

answer

B

question

Budget in which revenues are equal to spending:

answer

Balanced budget.

question

A situation in which the government takes in more than it spends:

answer

Budget surplus.

question

Situation in which the government spends more than it takes in:

answer

Budget deficit.

question

Inflation that is out of control; very high inflation:

answer

Hyperinflation.

question

Government bond that is repaid within three months to a year:

answer

Treasury bill.

question

Government bond that is repaid in two to ten years:

answer

Treasury note.

question

Government bond that can be issued for as long as 30 years:

answer

Treasury bond.

question

When revenues exceed expenditures, _____. (A) There is a budget deficit. (B) There is a budget surplus. (C) The government must create more money. (D) The government is forced to issue more bonds to raise money.

answer

B

question

When the government attempts to cover large deficits by creating more money, what is the probable result called? (A) Excess currency (B) Full employment (C) Hyperinflation (D) Government borrowing

answer

C

question

All the money the federal government owes to bondholders:

answer

National debt.

question

Which of the following is not a reason the national debt rose during Ronald Reagan's term as President? (A) Increased funding for defense spending (B) An unexpected economic downturn (C) The costs of running a war (D) Tax cuts

answer

C

question

The loss of funds for private investment due to government borrowing:

answer

Crowding-out effect.

question

Which of the following is not a problem associated with high national debt? (A) That it can slow the growth of the GDP. (B) That it makes investing in treasury bonds, notes, and bills very risky. (C) That it makes it harder for the government to fund projects. (D) That it reduces funds available for businesses to invest.

answer

B

question

What leads directly to the crowding-out effect? (A) Increased government spending. (B) A big federal budget deficit. (C) Cuts in federal spending. (D) A federal budget surplus.

answer

B

question

The late 1990s marked the first time in 30 years the President and the Office of Management and Budget (OMB) were able to make what announcement regarding the national deficit?

answer

The government was running a surplus.

question

Which of the following would be an accurate statement about achieving a balanced budget? (A) By the end of the 20th century, the federal government had paid most of its debts and had achieved a balanced budget. (B) Most states require a balanced budget for state spending. (C) Classical economists believe that a balanced budget is not in the best interest of the economy. (D) In 1995, Congress passed a constitutional amendment that requires a balanced budget.

answer

B

question

What can be expected when members of the baby boom generation begin to retire in large numbers? (A) Decreased services (B) Increased deficits (C) Decreased interest paid (D) Increased gross domestic product

answer

B

question

Which of the following situations could cause a budget deficit for the federal government? (A) The federal government issues more treasury bonds than treasury notes. (B) Government spending decreases. (C) There is a recession. (D) The federal government raises taxes.

answer

C

question

What is occurring when you buy a United States Savings Bond? (A) You are loaning money to the government. (B) You are paying for your child's college education. (C) You are borrowing money from a savings and loan association. (D) You are donating money for special government projects.

answer

A

question

Which of the following statements best describes a stage in the crowding-out effect? (A) The government lowers taxes, which motivates producers to increase output. (B) The government issues new money, which eventually causes inflation. (C) The government issues treasury bonds and spends the revenue on a new highway system. (D) The government increases government spending with revenue generated by higher taxes.

answer

C

question

Which of the following did not contribute to the federal budget surplus in the 1990s? (A) A strong economy and low unemployment. (B) Tax increases resulted in more federal revenue. (C) A decrease in government spending. (D) New budget procedures to help control government spending.

answer

C

question

What would be the best way for the federal government to attract investors toward purchasing bonds over other investment options? (A) Increase the term of the treasury bond. (B) Introduce more Treasury notes. (C) Offer high interest rates. (D) Designate bonds for specific public goods.

answer

C

question

Servicing the debt is _____. (A) Monitoring the rise and fall of the debt. (B) Paying interest on debt. (C) Seeking lenders to borrow from. (D) Submitting reports on the debt to the Office of Management and Budget.

answer

B

question

What is one of the major problems caused by a large national debt? (A) It does not allow small investments by private individuals. (B) It makes it hard for the government to carry on activities. (C) It decreases the amount of money available to be borrowed by businesses. (D) It makes it difficult for the country to operate internationally.

answer

C

question

What makes increased government spending an effective tool for increasing demand? (A) The multiplier effect (B) Political pressures (C) Supply-side economics (D) The Laffer curve

answer

A

question

What type of fiscal policies did President Franklin D. Roosevelt carry out after his election in 1932? (A) Productive capacity (B) Expansionary (C) Contractionary (D) Multiplier

answer

B

question

What is one of the major uses of government fiscal policy? (A) To let lawmakers make changes in economic decisions. (B) To prevent big changes in the level of the GDP. (C) To keep the amount of taxes collected from exceeding expenditures. (D) To allow the government to control its own spending on programs.

answer

B

question

If the President vetoes the budget, Congress _____. (A) Must adopt the budget. (B) Needs a two-thirds majority to override the veto. (C) Adopts the previous year's budget until a compromise is made. (D) Needs a simple majority to override the veto.

answer

B

question

Congress has just passed several bills outlining the federal budget. What is the next step in the budget process? (A) The new budget will automatically become law. (B) The President will sign the budget into law or veto it and send it back to Congress. (C) The Office of Management and Budget will analyze the budget and approve or reject it. (D) The federal budget will be sent to the 50 state legislatures for approval or rejection.

answer

B

question

Assuming the federal budget is balanced, if the government increases taxes and does not change anything else, then _____. (A) There will be a balanced budget. (B) There should be a budget surplus. (C) The government should stop issuing treasury bonds. (D) There should be a budget deficit.

answer

B

question

What are the primary tools of fiscal policy? (A) Government spending and capital budgets. (B) Interest rates and money supply. (C) Government spending and taxation. (D) Operating budgets and contractionary policies.

answer

C

question

All of the following people except _____ are well-known classical economists. (A) Adam Smith (B) Arthur Laffer (C) David Ricardo (D) Thomas Malthus

answer

B

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