Domestic Policy

Question 1

Define:

domestic policy

Answer 1

Domestic policy focuses on issues that arise within the United States.

Question 2

What was the key event in expanding the role of the federal government in domestic policy?

Answer 2

During the Great Depression, the federal government’s role in domestic policy expanded rapidly through the vehicle of New Deal programs.

Question 3

What are the three major policy types?

Answer 3

The three major policy types are:

• Distributive policies: subsidies aimed at certain groups
• Regulatory policies: agencies and departments craft rules to establish federal policy under their rule-making authority
• Redistributive policies: the federal government takes from one group and gives to another

Question 4

Why are distributive policies popular with politicians?

Answer 4

Distributive policies usually come in the form of a subsidy to certain groups or companies, such as farmers or aircraft plants. Often, politicians are rewarded for the subsidy in the form of votes and political contributions.

Question 5

Which branch of the federal government is responsible for most regulatory policies?

Answer 5

Although Congress drafts most laws, regulatory policies stem from agencies and departments within the executive branch. The agencies and departments enact regulations pursuant to their rulemaking authority.

As an example, the National Highway Traffic Safety Administration monitors Corporate Average Fuel Economy (CAFE) standards, enforcing regulations that are aimed at increasing fuel economy as part of the U.S. domestic policy aimed at reducing oil consumption.

Question 6

How do supply side economic theorists view domestic economic policy?

Answer 6

Supply side economic theorists contend that by making it easier to supply goods (for example, decreasing regulation and taxes), demand will be spurred and the economy will improve.

Question 7

What are some examples of re-distributive polices?

Answer 7

Re-distributive policies provide funds raised from tax revenue to those who are seen as needing financial assistance. Examples include housing assistance (Section 8), the Temporary Assistance to Needy Familes (TANF) program, and the Supplemental Nutrition Assistance Program (aka Food Stamps).

Question 8

What are the four major domestic policy types?

Answer 8

There are four major domestic policy types:

• Economic
• Social Welfare
• Health Care
• Environmental

Question 9

What is the key factor in determining choices in economic policy?

Answer 9

Economic policy is determined by economic theory. For example, Keynesian economic theorists focus on different economic policies as opposed to supply side economic theorists. The three main economic theories in U.S. policy are: (1) Keynesian economic theory, (2) monetarism, (3) supply side economics

Question 10

What is Keynesian economic theory?

Answer 10

In simple terms, Keynesian economic theorists focus on stimulating demand for products by having the government intervene with influxes of cash during a recession to stimulate purchases of goods and savings.

Question 11

What is monetarism and how does it relate to domestic policy?

Answer 11

Monetarism contends that excessive expansion of the money supply is inflationary, such as urged by the Keynesists, leading to higher prices. Monetarists argue that government should focus on maintaining stable prices.

Monetarism was proposed by Milton Friedman and was successfully used during the late 1970s and early 1980s.

Question 12

Restricting or expanding the monetary supply is a key component of monetarist domestic economic policy. How do monetarists typically do so?

Answer 12

Monetarists typically will use the Federal Reserve to raise or lower interest rates. At higher interest rates, companies and individuals borrow less, slowing the rate of inflation and restraining the marketplace. At lower interest rates, the opposite takes place.

Question 13

Define:

Reaganomics

Answer 13

Reaganomics was the fourfold economic policy of President Reagan, who espoused supply side economic theory with a dash of monetism. Reagan sought to reduce government spending, lowered marginal tax rates, reduced regulation, and reduced inflation by controlling the growth of the money supply.

Reagan’s program started an economic boom, but he failed to reduce government spending, leading to increased deficits.

Question 14

What is the role of the Council of Economic Advisers?

Answer 14

The Council of Economic Advisers guides the president in formulating and enacting domestic economic policies by the preparation of objective research. The council also prepares the president’s annual economic report.

The council is comprised of a number of economic experts who specialize in fields such as tax, macroeconomics, and manufacturing policy.

Question 15

What is monetary policy?

Answer 15

Monetary policy describes the actions taken by a central bank to influence the availability of money and credit to promote national economic goals.

The Federal Reserve Act of 1913 established the Federal Reserve and gave it the responsibility to set U.S. national monetary policy.

Question 16

How does the Federal Reserve Board enact economic policy?

Answer 16

The Federal Reserve Board is tasked with regulating interest rates, keeping prices stable, and maximizing employment. The Federal Reserve is responsible for monetary policy and has three tools at its disposal: open market operations, the discount rate, and reserve requirements.

Question 17

What are “open market operations”?

Answer 17

Open market operations refer to the Federal Reserve sale or purchase of treasury bonds and other agency securities. These purchases control the short-term interest rate and the amount of base money in the economy and thus indirectly establish control the total money supply.

Open market operations can spur the economy or be used to restrain the rate of inflation. They are the most common tool used by the Federal Reserve to enact economic policy.

Question 18

As used by the Federal Reserve, what is the “discount rate”?

Answer 18

The discount rate refers to the interest rate charged to commercial banks when they borrow money from the Federal Reserve, usually overnight.

The discount rate acts as a check on interest rates that in turn impact the interest rates banks charge borrowers.

Question 19

How does the Federal Reserve use reserve requirements to enact economic policy?

Answer 19

Reserve requirements are the amount of cash a bank must keep on hand. By raising or lowering reserve requirements, the Federal Reserve can increase or decrease the amount of money a bank has available to lend, restricting or loosening the money supply.

The Federal Reserve rarely uses the reserve requirement tool.

Question 20

How did Congress ensure that the Federal Reserve would operate as a relatively independent entity?

Answer 20

In creating the Federal Reserve, Congress provided that the seven member Federal Reserve Board of Governors, with staggered 14-year terms, are not eligible for renomination. In addition, neither Congress nor the executive branch exercises any oversight or control over the Federal Reserve’s monetary policies.

Small checks on the Federal Reserve’s power exist because Congress can impeach a governor, and the president has the power to nominate individuals to vacant seats with the Senate’s approval.

Question 21

What are typically the two overarching concerns that govern economic policy?

Answer 21

The two overarching concerns are typically unemployment and inflation. Based upon their support among lower-income Americans and union workers, Democrats typically express more concern about employment, while Republicans focus on inflation.

Question 22

Define:

fiscal policy

Answer 22

Fiscal policy refers to using the government budget to influence economic activity.

Question 23

What is the role of the Federal Trade Commission (FTC) in the economy?

Answer 23

The FTC focuses on consumer protection and antitrust laws, including a review of potential mergers between large companies. Both of these roles can have significant effects in the larger economy. FTC compliance can lead to significant costs on companies and the economy.

Question 24

Define:

entitlements

Answer 24

Entitlements are programs available to all Americans regardless of means and are a form of social welfare. Entitlement programs include Social Security and Medicare.

Question 25

Define:

means test

Answer 25

By the use of a means test, the government determines whether an individual or family is eligible for government aid or whether they have enough means to do without government assistance.

Means testing is used in most social welfare programs, such as Temporary Assistance to Needy Families, the Section 8 housing program, and the Aid to Families with Dependent Children program.

Question 26

What is the poverty line?

Answer 26

The poverty line marks the total cost of all essential resources an average American human adult consumes in a year. The poverty line is often used as a component of the means test to determine eligibility for various federal programs.

Question 27

Define:

Medicare

Answer 27

Medicare is a national social insurance program that guarantees access to health insurance for Americans ages 65 and older and younger people with disabilities.

Medicare is an entitlement and was enacted as part of President Lyndon Johnson’s Great Society programs.

Question 28

Define:

Medicaid

Answer 28

Medicaid is a state administered health program provided for families and individuals with low incomes and resources.

Medicaid is a means tested program jointly funded by the state and federal government.

Question 29

What law marked the largest regulatory overhaul of the health insurance industry since 1965?

Answer 29

The Patient Protection and Affordable Care Act is more commonly known as Obamacare. The law forbids health insurers from charging more to people with pre-existing conditions (e.g. cancer), and requires all Americans to have health care or pay a penalty.

The law also provides for state level insurance exchanges and means-tested financial assistance based on the poverty line.

Question 30

What agency is chiefly responsible for advancing the federal government’s environmental policies?

Answer 30

The Environmental Protection Agency (EPA) is chiefly responsible for advancing the federal government’s environmental policy.

The EPA does so chiefly through its rulemaking and rule adjudication roles.

Question 31

Which act was passed to protect critically imperiled animals threatened with extinction due to “economic growth and development untempered by adequate concern and conservation.”

Answer 31

In 1973, at Richard Nixon’s urging, Congress passed the Endangered Species Act.

The act empowers the United States Fish and Wildlife Service and the National Oceanic and Atmospheric Administration to protect species from extinction.

Question 32

Which environmental legislation addressed air pollution at the national level?

Answer 32

The Clean Air Act, originally passed in 1967 and strengthened in 1970, 1977, and 1990, empowered the Environmental Protection Agency to regulate air pollution.

Question 33

How is domestic policy developed?

Answer 33

• Agenda setting: The president and Congress establish an overarching legislative agenda
• Policy formulation: The proposed agenda is subjected to a cost-benefit analysis
• Policy adoption and implementation: The proposed policy is submitted as a bill to Congress, debated and revised, and either passed or dies
• Congress selects an agency or department to implement a policy
• Policy evaluation: Based upon public and governmental reaction, the new agenda settings are evaluated

Question 34

What are grants-in-aid?

Answer 34

A grant-in-aid is an award of cash provided to a state to fulfill a specific policy program.

Grants-in-aid typically come with strings attached. A grant-in-aid may require the funds be spent on a certain project or may be tied to the state enacting certain programs.

For example, federal highway funds are tied to a state’s agreement to limit the drinking age to those over age 21.

Question 35

What are block grants?

Answer 35

Block grants are grants provided to a state for a specific purpose, such as education or law enforcement. Block grants typically come with fewer strings attached than a grant-in-aid and focus on a specific purpose, rather than a specific policy.

Question 36

Define:

formula grant

Answer 36

A formula grant is a grant whose total value is derived using a formula included as part of the legislation enacting the grant.

For instance, the amount of the grant could be tied to a state’s population, and thus the grant amount would be higher for California than for Wyoming.

Question 37

What are project grants?

Answer 37

Project grants are federal grants for a very specific purpose and usually require state and local governments to provide matching funds.

As an example, the new Mississippi River Bridge between Missouri and Illinois at St. Louis utilizes a federal project grant and funds from both state governments to meet the $1.6 billion cost.

Question 38

A tax that imposes a greater burden (relative to resources) on the poor than on the rich is known as a _____ _____.

Answer 38

regressive tax

A sales tax is a regressive tax. While both high earners and low earners pay sales tax on a loaf of bread, the amount of the sales tax compared to total income level is less for the high earner than for the low earner.

Question 39

A _____ _____ shifts the taxation burden to those with higher incomes, requiring them to pay a greater percentage of their income in taxes than those with lower incomes.

Answer 39

progressive tax

In 2010, the top 1% of income earners paid 37% of all taxes, while the bottom 50% paid 2.36% of all taxes.

Question 40

From what source do most local (city/county) governments derive their revenue?

Answer 40

Most local sources derive their revenue from property taxes, which are typically a percentage of the total value of the property.

Property taxes can come in two forms: real estate property taxes, which are derived from the value of land and buildings; and personal property taxes, which can be levied on items such as automobiles, inventory, and equipment.

Question 41

Who is responsible for collecting sales tax?

Answer 41

Sales taxes are typically collected by a seller at the time of purchase and are measured as a percentage of the total value of the item. For instance, to pay for $1.00 loaf of bread in a state with a 7% sales tax, a consumer would pay $1.07.

Most states, and some local governments, have a sales tax.

Question 42

What was the primary focus of domestic policy in the Gilded Age, roughly between 1870-1890?

Answer 42

Most domestic policy focused on transportation (such as the Transcontinental Railroad) and reforms advocated by unions (such as child labor reforms, the 10-hour workday, and worker safety issues).

Question 43

After budget resolutions are submitted on April 1 by the budget committees of the House and Senate, when are their respective bodies expected to vote on the resolutions?

Answer 43

Votes are expected by about April 15, and the resolutions can be amended. The resolutions are not laws and thus do not require the president’s signature; instead, they provide a blueprint for the appropriation process.

For fiscal years 2010, 2011, and 2012, the Senate failed to pass a budget resolution or bring a budget plan to the Senate floor.

Question 44

During the Progressive Era (1890-1920), domestic policy was primarily concerned with what issue?

Answer 44

Throughout the Progressive Era, domestic policy was concerned primarily with the effects of big business, such as the formation of large companies through mergers, trusts, and other attempts to monopolize. The “trust busting” efforts of presidents Roosevelt and Taft reflect this increased attention.

During the period, the 16th Amendment (allowing income tax) was ratified, and the Federal Reserve was established to stabilize the nation’s finances.

Question 45

What period marked the greatest expansion of the federal government into setting domestic policy?

Answer 45

The largest increase in federal government involvement came during the Great Depression. President Franklin Roosevelt’s New Deal programs established a plethora of federal agencies responsible for policies related to a wide variety of functions, from the stock market (the Securities and Exchange Commission) to housing (the Federal Housing Administration) to retirement (Social Security).

Question 46

What was the primary domestic policy focus of President Johnson’s (1963-1968) Great Society programs?

Answer 46

Johnson’s Great Society programs were part of his “War on Poverty” and aimed to alleviate poverty by establishing housing programs, education programs, and Medicaid.

Question 47

Which two laws govern most of the federal budgetary process?

Answer 47

The two laws that govern most of the federal budgetary process are the Budget and Accounting Act of 1921 and the Congressional Budget and Impoundment Control Act of 1974. These two acts provide most of the deadlines and procedures Congress and the president are to follow in establishing the federal government.

Question 48

What is the first step in Congress’ annual budget creation process?

Answer 48

As established in the Budget and Accounting Act of 1921, the first step takes place when the president submits the annual proposed budget, which by law he must do on the first Monday in February.

In recent years, there has been an increased trend to miss the deadline; no president from Harding to Carter missed it, but presidents Reagan and Clinton missed it once each. President Obama has missed the deadline three times.

Question 49

After the president submits his budget to Congress on the first Monday in February, what steps does Congress take on the budget?

Answer 49

During February and March, the House and Senate budget committees begin to review the president’s budget, receiving input from various congressional committees, the Executive Branch departments and agencies, and the Congressional Budget Office. By April 1, the budget committees each submit budget resolutions to their respective bodies, which specify funding levels for appropriations committees and subcommittees

Question 50

What is the next step after both houses of Congress pass their respective resolutions on the federal budget?

Answer 50

After both houses pass their respective budget resolutions, selected representatives and senators meet to resolve differences between the two resolutions, creating a conference report. The House and Senate then vote on the conference report, which both houses must approve for the federal budget to become binding.

Question 51

Once both houses of Congress have approved the conference report on the federal budget, what happens next?

Answer 51

After the conference report is approved, the House and Senate appropriations committees separately prepare specific expenditures of money. Both committees are organized into 13 subcommittees, which consider specific appropriations and draft 13 appropriation bills.

By October 1 (the start of the fiscal year), the appropriations bills are to be completed, voted on by Congress, and signed by the president.

Question 52

If Congress does not pass a budget and/or appropriations bill, what other option is available to the legislative branch to ensure the government continues to function?

Answer 52

In the absence of a formal appropriations bill, Congress can pass a continuing resolution, which provides continued funding for federal programs at either current or reduced levels from the previous fiscal year.

Contrary to the Congressional Budget Act of 1974, which mandates a budget, Congress has failed to pass a budget since 2009.

Question 53

What is the difference between mandatory (non-discretionary) and discretionary spending?

Answer 53

Mandatory spending is spending to which Congress has already committed, e.g. interest on the national debt or social security payments. Discretionary spending refers to spending set on a yearly basis as established yearly by Congress.