Unit 14 Quiz Deck Flashcards
The federal government could use which of the following to slow the economy?
A) Buy Treasury securities from banks
B) Raise taxes
C) Raise the federal funds rate
D) Increase government spending
B) Raise taxes
Taxation and government spending are tools of the federal government (president and congress). Changing the federal funds rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy.
To grow or expand the economy, U.S. fiscal policy should be to
A) raise taxes and government spending for programs and development.
B) cut taxes and government spending for programs and development.
C) raise taxes and cut all government spending for programs and development.
D) cut taxes and increase government spending for programs and development.
D) cut taxes and increase government spending for programs and development.
Fiscal policies to grow or expand the economy would encompass cuts in taxes allowing consumers to have more money to spend, spurring the economy forward, and increasing government spending for programs and development that creates jobs, again spurring the economy forward.
The largest component of the U.S. balance of payments is
A) imports.
B) exports.
C) foreign currency.
D) the balance of trade
D) the balance of trade.
U.S. imports and exports are the components used to calculate the balance of trade. The balance of trade is the measure of those two components against each other—the net being either more money coming into or going out of the U.S. economy. That measure, the balance of trade, is the largest component of the U.S. balance of payments.
What is the economic theory that says the government can and should effect individual spending by adjusting taxes and government spending?
A) Monetarist
B) Reaganomics
C) Supply side
D) Keynesian
D) Keynesian
Keynesian theory believes that the government can use its resource to stimulate or discourage economic activity through the use of tax and spending policies. Monetarist theory is employed by a central bank (The Federal Reserve in the United States) and uses interest rates to stimulate or discourage economic activity. Supply side theory focuses on the use of tax and regulatory policies to stimulate the economy. Reaganomics is a term applied to the use of supply-side theory by President Reagan in the United States in the 1980s. We do not expect the term to appear on the exam, but as it is used here, it is an incorrect response.
Match the following statement to the best term: Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.
A) Socialism
B) Keynesian Theory
C) Balance of payments
D) Monetarist Theory
B) Keynesian Theory
According to the late economist John Maynard Keynes, a government’s fiscal policies determine the country’s economic health. Fiscal policy involves adjusting the level of taxation and government spending. In this way the government intervenes in the economy and is a major force in creating prosperity by engaging in activities that affect aggregate demand.
Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets?
A) Factors outside the United States have little impact on our securities and trade markets and thus our domestic economy.
B) Factors outside the United States can impact our securities and trade markets, but the effects are always short term and thus impact our domestic economy very little.
C) Factors outside the United States never have immediate impact on our securities and trade markets, but over time can impact our domestic economy.
D) Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy.
D) Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy.
While not all factors outside of the United Sates will impact our domestic economy and markets, some can and will immediately. In these instances, the effects can be prolonged and thus the impact to our overall domestic economy is also felt.
Exports from the United States would likely increase if
I. the Japanese yen strengthened against the dollar.
II. the U.S. dollar strengthened against the euro.
III. the U.S. dollar weakened against the British pound.
IV. the Swiss franc weakened against the dollar.
A) I and III
B) II and III
C) I and IV
D) II and IV
A) I and III
U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar.
A surplus in the balance of payments is best described by
A) other countries exporting more to the United States.
B) more money flowing into the United States than out.
C) more money flowing out of the United States than into the United States.
D) the United States importing more than it exports.
B) more money flowing into the United States than out.
This is the basic definition of a surplus in the balance of payments. Generally, this is a result of the United States increasing exports and decreasing imports.
Deflationary periods are characterized by all of the following except
A) a decline in prices.
B) rising unemployment.
C) increased consumer demand.
D) coinciding with recessions.
C) increased consumer demand.
Periods of deflation tend to occur during recessions. Consumer demand decreases, leading to declining prices. When demand decreases, so does production, which leads to rising unemployment.
Fiscal policy
I. is the most efficient means for solving short-term economic issues.
II. is not considered the most efficient means to solve short-term economic issues.
III. is reflected in the budget decisions enacted by our president and Congress.
IV. is reflected in the money supply decisions enacted by the Federal Reserve Board (FRB).
A) II and IV
B) II and III
C) I and III
D) I and IV
B) II and III
Fiscal policy is reflected in the budget decisions enacted by our president and Congress. This political process takes time for conditions and solutions to be identified and implemented and is therefore not considered the most efficient way to solve short-term economic issues.
A strong U.S. dollar leads to more
A) U.S. imports and a balance of payments surplus.
B) U.S. exports and a balance of payments surplus.
C) U.S. exports and a balance of payments deficit.
D) U.S. imports and a balance of payments deficit.
D) U.S. imports and a balance of payments deficit.
When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.
Laws increasing or decreasing taxation would be best associated with
A) fiscal policy enacted by the Federal Reserve Board (FRB).
B) fiscal policy enacted by the president and Congress.
C) monetary policy enacted by the FRB.
D) monetary policy enacted by the president and Congress.
B) fiscal policy enacted by the president and Congress.
Tax laws are fiscal (not monetary) policy and are enacted by the president and Congress.
A deficit in the U.S. balance of payments can occur if
I. interest rates in foreign countries are higher than U.S. domestic rates.
II. interest rates in foreign countries are lower than U.S. domestic rates.
III. U.S. consumers are purchasing (importing) foreign goods.
IV. foreign consumers are purchasing (importing) U.S. goods
A) II and III
B) I and IV
C) I and III
D) II and IV
C) I and III
Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets.
The federal government could use which of the following to stimulate the economy?
A) Raise the federal funds rate
B) Buy Treasury securities from banks
C) Raise taxes
D) Increase government spending
D) Increase government spending
Taxation and government spending are tools of the federal government (president and congress). Changing the discount rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy.
There are two distinctive types of policies implemented to shape and mold the U.S. economy. They are
A) monetary and fiscal.
B) federal and municipal.
C) corporate and governmental.
D) supply and demand.
A) monetary and fiscal.
The two distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress, including increases or decreases in federal spending and money raised through taxation.
