Chapter 16

Question 1

public policy

Answer 1

a law, rule, statute, or edict that expresses the government’s goals and provides for rewards and punishments to promote those goals’ attainment

Question 2

public goods

Answer 2

goods or services that are provided by the government because they either are not supplied by the market or are not supplied in sufficient quantities

Question 3

gross domestic product (GDP)

Answer 3

the total value of goods and services produced within a country

Question 4

inflation

Answer 4

a consistent increase in the general level of prices

Question 5

categorical grants

Answer 5

congressional grants given to states and localities on the condition that expenditures be limited to a problem or group specified by the law
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Question 6

Keynesians

Answer 6

followers of the economic theories of John Maynard Keynes, who argued that the government can stimulate the economy by increasing public spending or by cutting taxes

Question 7

laissez-faire capitalism

Answer 7

an economic system in which the means of production and distribution are privately owned and operated for profit with minimal or no government interference

Question 8

supply-side economics

Answer 8

an economic theory that posits that reducing the marginal rate of taxation will create a productive economy by promoting levels of work and investment that would otherwise be discouraged by higher taxes

Question 9

monetary policies

Answer 9

efforts to regulate the economy through the manipulation of the supply of money and credit. America’s most powerful institution in this area of monetary policy is the Federal Reserve Board

Question 10

Federal Reserve System

Answer 10

a system of 12 Federal Reserve banks that facilitates exchanges of cash, checks, and credit; regulates member banks; and uses monetary policies to fight inflation and deflation

Question 11

federal funds rate

Answer 11

the interest rate on loans between banks that the Federal Reserve Board influences by affecting the supply of money available

Question 12

fiscal policy

Answer 12

the government’s use of taxing, monetary, and spending powers to manipulate the economy

Question 13

tariff

Answer 13

a tax on imported goods

Question 14

progressive taxation

Answer 14

taxation that hits upper income brackets more heavily

Question 15

regressive taxation

Answer 15

taxation that hits lower income brackets more heavily

Question 16

redistribution

Answer 16

a policy whose objective is to tax or spend in such a way as to reduce the disparities of wealth between the lowest and the highest income brackets

Question 17

loophole

Answer 17

incentive to individuals and businesses to reduce their tax liabilities by investing their money in areas the government designates

Question 18

budget deficit

Answer 18

amount by which government spending exceeds government revenue in a fiscal year

Question 19

mandatory spending

Answer 19

federal spending that is made up of “uncontrollables,” budget items that cannot be controlled through the regular budget process

Question 20

uncontrollables

Answer 20

budgetary items that are beyond the control of budgetary committees and can be controlled only by substantive legislative action in Congress. Some uncontrollables, such as interest on the debt, are beyond the power of Congress, because the terms of payments are set in contracts

Question 21

discretionary spending

Answer 21

federal spending on programs that are controlled through the regular budget process

Question 22

monopoly

Answer 22

a single firm in a market that controls all the goods and services of that market; absence of competition

Question 23

antitrust policy

Answer 23

government regulation of large businesses that have established monopolies

Question 24

deregulation

Answer 24

a policy of reducing or eliminating regulatory restraints on the conduct of individuals or private institutions

Question 25

subsidies

Answer 25

government grants of cash or other valuable commodities, such as land, to an individual or an organization; used to promote activities desired by the government, reward political support, or buy off political opposition