Unit 14 - Fiscal Policy and Trade

Question 1

What are the two distinctive policies that impact our economy?

Answer 1

Monetary and Fiscal

Question 2

This is what the FRB engages in when it attempts to influence the money supply.

Answer 2

Monetary policy

Question 3

This refers to the governments budget decisions and tax policy as enacted by our president and Congress. It is based on the assumption that the government can control such economic forces as unemployment levels and inflation by adjusting overall demand for goods and services.

Answer 3

Fiscal policy

Question 4

What determines fiscal policy?

Answer 4

Political process

Question 5

This is not considered the most efficient means to solve short-term economic problems

Answer 5

Fiscal policy

Question 6

These are enacted by the FRB to influence the money supply.

Answer 6

Monetary policies

Question 7

These are enacted by our present and Congress such as tax laws and federal spending appropriations.

Answer 7

Fiscal policies

Question 8

This depends on the use of taxation and federal spending to increase or decrease the money supply through encouraging or discouraging consumer and business spending.

Answer 8

Fiscal policy

Question 9

This theory believes that demand for goods ultimately controls employment and prices. Insufficient demand for goods causes unemployment; too much demand causes inflation. It believes it was the government’s right and responsibility to manipulate overall demand. by changing its own levels of spending and taxation.

Answer 9

Keynesian Theory

Question 10

According to ______, a government’s fiscal policies determine the country’s economic health. ____ ____ involves adjusting the level of taxation and government spending.

Answer 10

1. Keynes

2. Fiscal policy

Question 11

Government affects individual levels of spending and saving by

Answer 11

Adjusting taxes

Question 12

____ taxes removes money from the private sector, which reduces private-sector demand and spending.

Answer 12

Increasing

Question 13

___ ____ puts money back into the economy.

Answer 13

Government spending

Question 14

To increase private-sector demand for goods, the government _____ taxes, which increases people’s disposable income.

Answer 14

Reduces

Question 15

Keynesian theory is also called the

Answer 15

Demand side theory

Question 16

This focuses on directly increasing the supply of money to the consumer. Increasing money in the consumers pocket encourages spending (increasing the demand for goods and services), decreasing the money supply of the consumer discourages spending (so decreases for good and services)

Answer 16

Keynesian theory

Question 17

This theory holds that government should allow market forces to determine prices of all goods. It believe the federal government should reduce government spending, as well as taxes. Sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably.

Answer 17

Supply side economics

Question 18

This focuses on creating a healthy environment for business by decreasing the tax and regulatory burden on business.

Answer 18

Supply side economics

Question 19

Both theories believe

Answer 19

That decreasing taxes encourages economic activity and increasing discourages economic activity

Question 20

This sees government spending as encouraging economic activity.

Answer 20

Demand side

Question 21

This sees government spending as an inefficient and temporary approach

Answer 21

Supply side

Question 22

This forces stimulus on the consumer.

Answer 22

Demand side

Question 23

This believes that encouraging business to be successful and expand is a more sustainable long term approach.

Answer 23

Supply side

Question 24

The value of currency against another is known as

Answer 24

The exchange rate

Question 25

The value of the US dollar against foreign currencies affects the

Answer 25

Balance of trade

Question 26

When the value of the dollar declines against another currency, the prices of US products cost less in terms of the foreign currency. Exports will _____ and imports will ______

Answer 26

1. Increase

2. Decrease

Question 27

When the value of the dollar strengthens against another currency, the price of US products increases in terms of the foreign currency. Exports will ____ and imports _____.

Answer 27

1. Decrease

2. Increase

Question 28

A strong dollar means

Answer 28

Imports are less expensive here in the United States.

Question 29

A strong dollar helps keep

Answer 29

Inflation in check

Question 30

A weak dollar will tend to

Answer 30

Increase the rate of inflation

Question 31

The flow of money between the US and other countries is known as the

Answer 31

Balance of payments

Question 32

More money flowing into the US than out is

Answer 32

Surplus

Question 33

More money flowing out of the US than in is

Answer 33

Deficit

Question 34

This may occur when interest rates in another country are high because money flows to where it earns the highest return.

Answer 34

A deficit

Question 35

The largest component of the balance of payments is the

Answer 35

Balance of trade

Question 36

What is the balance of trade?

Answer 36

The export and import of merchandise

Question 37

On the US credit side (money flowing in) are sales of

Answer 37

American products to foreign countries (US exports)

Question 38

On the UD debit side (money flowing out) are sales of

Answer 38

American purchases of foreign goods (US imports)

Question 39

When debits _____ credits, a deficit in the balance of payments occurs.

Answer 39

Exceed

Question 40

When credits _____ debits, a surplus exists.

Answer 40

Exceed