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American Government > Monetary and Fiscal > Flashcards

Monetary and Fiscal Flashcards

1
Q

Who controls the budget process?

A

The president proposes, Congress disposes.

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2
Q

What are the three historical periods of budget control in the U.S.?

A

1789–1921: Congress Controlled, 1921–1974: President Controlled, 1974–Present: Shared Control.

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3
Q

What law required the president to submit a budget proposal to Congress?

A

Budget and Accounting Act of 1921.

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4
Q

What are the four phases of the federal budget cycle?

A
  • Proposal
  • Congressional review
  • Appropriations
  • Implementation
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5
Q

What happens if no budget is passed by October 1?

A

Congress passes a continuing resolution or there is a government shutdown.

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6
Q

What is the difference between mandatory and discretionary spending?

A

Mandatory is required by law (e.g., Social Security), discretionary is determined annually (e.g., military).

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7
Q

What is the largest category of discretionary spending?

A

The military.

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8
Q

What is the difference between progressive and regressive taxes?

A

Progressive taxes increase with income, regressive taxes take a larger percentage from lower-income individuals.

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9
Q

What are the primary sources of federal revenue?

A
  • Individual income tax (largest)
  • Social insurance tax
  • Corporate income tax
  • Excise taxes
  • Other fees
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10
Q

What happens to consumer demand if Congress increases taxes?

A

It decreases.

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11
Q

If unemployment is high, what two fiscal policy actions might the government take?

A
  • Decrease taxes
  • Increase spending
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12
Q

What is a historical example of fiscal policy improving the U.S. economy?

A

The New Deal.

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13
Q

What is the main goal of the Federal Reserve?

A

Maintain a healthy economy by keeping inflation low and employment high.

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14
Q

What are the three main tools of the Federal Reserve?

A
  • Open market operations
  • Reserve requirements
  • Interest rates (discount rate)
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15
Q

What is open market operations?

A

Buying or selling government bonds to control the money supply.

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16
Q

What happens to the money supply if the Federal Reserve sells bonds?

A

It decreases.

17
Q

What happens to the money supply if the Federal Reserve buys bonds?

A

It increases.

18
Q

What happens if the Federal Reserve increases the reserve requirement?

A

Banks must hold more money, reducing the money supply.

19
Q

What happens if the Federal Reserve lowers the reserve requirement?

A

Banks can lend more, increasing the money supply.

20
Q

What happens if the Federal Reserve raises interest rates?

A

Borrowing becomes more expensive, reducing money in circulation.

21
Q

What happens if the Federal Reserve lowers interest rates?

A

Borrowing becomes cheaper, increasing money in circulation.

22
Q

If inflation is rising too quickly, what action should the Federal Reserve take?

A
  • Increase reserve requirements
  • Increase interest rates
  • Sell bonds
23
Q

If unemployment is rising, what action should the Federal Reserve take?

A
  • Decrease reserve requirements
  • Lower interest rates
  • Buy bonds
24
Q

What is another term for ‘interest rate’?

A

Discount rate.

25
Q

What is monetary policy?

A

Actions by the Federal Reserve to control money and credit in the economy.

26
Q

What is fiscal policy?

A

Government policy on taxes and spending to influence the economy.

27
Q

What happens when the government increases spending and lowers taxes?

A

Economic growth, increased employment, but higher deficits.

28
Q

What happens when the government decreases spending and raises taxes?

A

Slower economic growth, reduced inflation, lower deficits.

29
Q

What is one way the Federal Reserve regulates economic activity?

A

Controlling the money supply.

30
Q

If inflation reaches 50% per year, what should the Federal Reserve do?

A
  • Increase reserve requirements
  • Raise interest rates
  • Sell bonds
31
Q

If unemployment is high and inflation is low, what should the Federal Reserve do?

A

Decrease interest rates to encourage borrowing.

32
Q

Which of these is NOT a function of the Federal Reserve?

A

Managing the federal deficit.

33
Q

What are the goals of monetary policy?

A
  • Maximum employment
  • Stable prices
  • Moderate long-term interest rates
34
Q

What are entitlements?

A

Government benefits required by law, like Social Security and Medicare.

35
Q

What is the largest category of federal spending?

A

Mandatory spending (e.g., Social Security).

36
Q

What is a budget deficit?

A

When government spending exceeds revenue.

37
Q

What is the national debt?

A

The total amount of money the U.S. government owes.

American Government (5 decks)

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