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16
Making Economic Policy
Multiple-Choice Questions
1. Inflation is best understood as the rate at which __________.
a. gross domestic product expands
b. prices for goods and services decrease
c. prices for goods and services increase
d. the federal government increases taxes to raise revenue
Topic: An Introduction to Economic Policy
Learning Objective: LO 16.1: Describe the federal government’s role in making
economic policy and how the economy’s performance is measured.
Page Reference: 478
Skill Level: Remember the Facts
Difficulty Level: Easy
2. If the Federal Reserve raises the federal funds rate, what is likely to happen?
a. There will be more money available for investment and growth.
b. Inflation will increase, and unemployment will decrease.
c. Both inflation and unemployment will decrease.
d. There will be less money available for investment and growth.
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 485
Skill Level: Apply What You Know
545
Difficulty Level: Difficult
3. The tax on the value of a product at each stage of production and distribution is
called the __________.
a. excise tax
b. production tax
c. total tax
d. value-added tax
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 483
Skill Level: Remember the Facts
Difficulty Level: Easy
4. Worries about international competition often lead domestic producers to call for
__________.
a. anti-trust legislation
b. an international trade injunction
c. protectionism
d. a value-added tax
Topic: Promoting the Economy
Learning Objective: LO 16.4: Identify ways in which the federal government
seeks to promote economic growth.
Page Reference: 488
Skill Level: Understand the Concepts
Difficulty Level: Moderate
5. Which of the following is true of the American Recovery and Reinvestment Act?
a. It failed to create jobs.
b. It created millions of jobs, but at a high cost per job.
c. It is widely credited with helping the economy out of recession.
d. It failed to stimulate investment.
Topic: Monetary Policy
546
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 487
Skill Level: Analyze It
Difficulty Level: Difficult
6. The size of the national debt is __________.
a. declining
b. rising
c. marginal
d. unchanged
Topic: Introduction
Learning Objective: Introduction
Page Reference: 474
Skill Level: Remember the Facts
Difficulty Level: Easy
7. The __________ provides an international forum for reaching trade agreements
and resolving disputes among its 130 members.
a. GATT
b. NAFTA
c. SEC
d. WTO
Topic: Promoting the Economy
Learning Objective: LO 16.4: Identify ways in which the federal government
seeks to promote economic growth.
Page Reference: 490
Skill Level: Remember the Facts
Difficulty Level: Easy
8. Certain tariffs, limits on imported goods, and import regulations limit U.S.
consumption of foreign products, which has contributed to the __________.
a. federal funds rate
b. budget deficit
c. national debt
d. trade deficit
547
Topic: Promoting the Economy
Learning Objective: LO 16.4: Identify ways in which the federal government
seeks to promote economic growth.
Page Reference: 488
Skill Level: Understand the Concepts
Difficulty Level: Moderate
9. The Constitution gives __________ the power to borrow, coin, and print money.
a. Congress
b. the Treasury Department
c. the Federal Reserve Board
d. the president
Topic: An Introduction to Economic Policy
Learning Objective: LO 16.1: Describe the federal government’s role in making
economic policy and how the economy’s performance is measured.
Page Reference: 476
Skill Level: Remember the Facts
Difficulty Level: Easy
10. Who is included in the unemployment rate?
a. people who have taken jobs below their skill levels
b. stay-at-home parents who are not looking for jobs
c. able-bodied workers who are looking for jobs but cannot find them
d. people who would like to work, but have given up on finding a job
Topic: An Introduction to Economic Policy
Learning Objective: LO 16.1: Describe the federal government’s role in making
economic policy and how the economy’s performance is measured.
Page Reference: 478
Skill Level: Understand the Concepts
Difficulty Level: Moderate
11. One criticism of government regulation of the economy is that the regulations
themselves can raise the cost of economic activity, also known as __________.
a. compliance costs
b. excise taxes
548
c. labor injunctions
d. tariffs
Topic: The Deregulation Movement
Learning Objective: LO 16.6: Evaluate the advantages and disadvantages of the
deregulation movement.
Page Reference: 496
Skill Level: Remember the Facts
Difficulty Level: Easy
12. The total market value of all goods and services produced in an area during a year
is termed which of the following?
a. gross economic output
b. gross domestic product
c. maximum national product
d. national economic performance
Topic: An Introduction to Economic Policy
Learning Objective: LO 16.1: Describe the federal government’s role in making
economic policy and how the economy’s performance is measured.
Page Reference: 479
Skill Level: Remember the Facts
Difficulty Level: Easy
13. Which of the following constitutes the largest portion of the federal budget?
a. discretionary spending
b. foreign aid
c. homeland security
d. mandatory spending
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 481
Skill Level: Remember the Facts
Difficulty Level: Easy
14. Supporters of progressive taxation argue that __________.
549
a. it reduces compliance costs for businesses
b. it reduces government involvement in the economy
c. it has minimal impact on those with low income
d. it has minimal impact on the wealthy
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 481
Skill Level: Analyze It
Difficulty Level: Difficult
15. __________ is/are among the most important tools that monetary policy uses to
affect the overall economy.
a. Foreign monetary investment
b. Government spending
c. Interest rates
d. Taxation rates
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 485
Skill Level: Understand the Concepts
Difficulty Level: Moderate
16. Which of the following entities is responsible for setting the federal funds rate in
the United States?
a. the Congressional Budget Office
b. the Executive Office of the President
c. the Federal Reserve Board
d. the Office of Management and Budget
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 485
550
Skill Level: Understand the Concepts
Difficulty Level: Easy
17. In 2014, nearly half of federal spending went to __________.
a. benefit programs for individuals
b. interest on the national debt
c. national defense
d. monetary policy
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 481
Skill Level: Remember the Facts
Difficulty Level: Easy
18. What is the main purpose of monetary policy?
a. to affect how much money is circulating through the economy
b. to control the amount of public debt sold to foreign states
c. to equalize income disparity among citizens of the United States
d. to expand the government’s revenue base so as to reduce the deficit
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 484
Skill Level: Understand the Concepts
Difficulty Level: Moderate
19. What is the main goal of fiscal policy?
a. to affect how much money is available to state governments for capital projects
b. to determine how much interest the government will pay on the federal debt
c. to stimulate the economy by increasing the number of exports into the United
States
d. to use taxes and government spending to help stimulate or slow down economic
growth
551
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 480
Skill Level: Understand the Concepts
Difficulty Level: Moderate
20. Laissez-faire economics holds which of the following to be true?
a. The government should actively intervene in the economy.
b. The government should not take an active role in the economy.
c. The government should do everything possible to reduce unemployment.
d. The government should lower interest rates during a recession.
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 486
Skill Level: Understand the Concepts
Difficulty Level: Moderate
21. Which of the following is an example of corporate social responsibility?
a. antitrust legislation
b. boycotting a product that is dangerous to the environment
c. encouraging employees to volunteer by giving them extra days of paid leave
d. issuing an environmental impact statement
Topic: Regulating the Economy
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 495
Skill Level: Understand the Concepts
Difficulty Level: Moderate
22. Why do most economists oppose protectionism?
a. because it contributes to the trade deficit
b. because it artificially lowers prices, hurting businesses
c. because it gives labor unions too much power
d. because it prevents the efficient use of resources
552
Topic: Promoting the Economy
Learning Objective: LO 16.4: Identify ways in which the federal government
seeks to promote economic growth.
Page Reference: 488
Skill Level: Understand the Concepts
Difficulty Level: Moderate
23. What is the purpose of deregulation in the American political economy?
a. Deregulation seeks to increase the political power of labor unions.
b. Deregulation seeks to increase the power of large economic monopolies.
c. Deregulation seeks to remove inefficient barriers in the collection of taxes.
d. Deregulation seeks to remove inefficient barriers to productivity and growth.
Topic: The Deregulation Movement
Learning Objective: LO 16.6: Evaluate the advantages and disadvantages of the
deregulation movement.
Page Reference: 498
Skill Level: Understand the Concepts
Difficulty Level: Moderate
24. Regulatory legislation at the start of the twentieth century primarily dealt with
__________.
a. business monopolies
b. education
c. labor unions
d. agriculture
Topic: Regulating the Economy
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 492
Skill Level: Understand the Concepts
Difficulty Level: Moderate
25. Which of the following is a consequence of government subsidies to the farming
industry?
a. lower food exports
553
b. higher food prices
c. lower food prices
d. fewer jobs in agriculture
Topic: Promoting the Economy
Learning Objective: LO 16.4: Identify ways in which the federal government
seeks to promote economic growth.
Page Reference: 487
Skill Level: Analyze It
Difficulty Level: Difficult
26. The payroll tax is considered a _________.
a. progressive tax
b. regressive tax
c. tax expenditure
d. subsidy
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 481
Skill Level: Understand the Concepts
Difficulty Level: Moderate
27. If the Federal Reserve wanted to slow the rate of economic growth, it would most
likely __________.
a. encourage the president to lower taxes
b. increase interest rates
c. increase the money supply
d. lower interest rates
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 485
Skill Level: Understand the Concepts
Difficulty Level: Moderate
554
