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28. In general, a recession does which of these?
a. reduces the budget deficit
b. leads to higher unemployment
c. lasts at least a year
d. leads to higher inflation
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: 477
Skill Level: Understand the Concepts
Difficulty Level: Moderate
29. Which of the following is true regarding mandatory spending policies?
a. They are designed to increase the money supply to improve economic growth.
b. They create a serious ongoing financial burden on the federal government.
c. They reduce the overall cost of compliance for major industrial sectors.
d. They reduce the overall cost of doing business overseas.
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 481 – 482
Skill Level: Understand the Concepts
Difficulty Level: Moderate
30. Under the Taft-Hartley Act, courts are allowed to issue __________.
a. union shop agreements
b. public contracts
c. collective bargaining agreements
d. labor injunctions
Topic: Regulating the Economy
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 493
Skill Level: Understand the Concepts
555
Difficulty Level: Moderate
31. U.S. monetary policy involves which of the following?
a. import and export policies
b. interest rates and the money supply
c. supply-side economics
d. the national debt and the budget deficit
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 484 – 485
Skill Level: Understand the Concepts
Difficulty Level: Moderate
32. According to economists, what are the stages of the normal business cycle?
a. contraction, expansion, recession, and recovery
b. expansion, contraction recession, and recovery
c. growth, depression, recession, and recovery
d. slow-down, rebound, and stability
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: 477
Skill Level: Understand the Concepts
Difficulty Level: Moderate
33. Which of the following contributes to the growing income inequality in the
United States?
a. the progressive tax structure
b. the decline in manufacturing jobs
c. the deep impact of the financial recession on the wealthy
d. the high rate of inflation
Topic: An Introduction to Economic Policy
556
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: Understand the Concepts
Difficulty Level: Moderate
34. The Great Depression pitted economists favoring __________ against those
favoring __________.
a. regulatory policy; deregulation
b. monetary policy; fiscal policy
c. protectionism; free trade
d. laissez-faire economics; Keynesian economics
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
35. When it comes to taxes, which of the following statements is true?
a. There is much agreement on what is the best type of tax, but not much
agreement on the tax rates.
b. Income taxes provide the most consistent stream of revenue for the
government.
c. Overall, there is considerable disagreement over what is the best type of tax.
d. Sales taxes are the primary mechanism by which the federal government raises
revenues.
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 483
Skill Level: Understand the Concepts
Difficulty Level: Moderate
36. What was the main purpose of the Clayton Act?
a. to provide greater stability in the agricultural sector
b. to reduce the trade deficit
557
c. to prevent unfair competitive practices
d. to stimulate the economy in the wake of the Great Depression
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
37. Which of the following provides the greatest source of revenue for the federal
government?
a. individual income taxes
b. payroll taxes
c. corporate income taxes
d. excise taxes
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
38. The cost of borrowing money is directly linked to the interest rate a bank’s best
customers receive on short-term loans, or the __________.
a. the federal funds rate
b. the prime rate
c. the fixed rate
d. the adjustable rate
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 485
Skill Level: Remember the Facts
Difficulty Level: Easy
558
39. Upon taking office in 2009, which of the following did President Obama advocate
to deal with the economic crisis?
a. increasing exports
b. increasing government spending
c. raising interest rates
d. enacting stricter regulation of business
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 487
Skill Level: Understand the Concepts
Difficulty Level: Moderate
40. If Congress adopts a policy to make cars more fuel efficient, they have adopted a
__________.
a. fiscal stimulus policy
b. microeconomic policy
c. monetary policy
d. regulatory policy
Topic: Regulating the Economy
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 491
Skill Level: Apply What You Know
Difficulty Level: Difficult
41. Compared to other nations such as Russia and Sweden, the United States has
__________ than many of its competitors.
a. fewer economic regulations
b. higher taxes
c. lower interest rates
d. more regulation
Topic: Regulating the Economy
559
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 491
Skill Level: Understand the Concepts
Difficulty Level: Moderate
42. Which of these is most consistent with the philosophy of Keynesianism?
a. interest rate increases by the Federal Reserve
b. government decisions to increase the money supply
c. increases in government spending during recession
d. deregulation of the economy
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 486
Skill Level: Apply What You Know
Difficulty Level: Difficult
43. Which of the following is an example of a tax expenditure?
a. tax breaks to companies that invest in innovation and expansion
b. federal grants to companies for research and development
c. federal loans to banks
d. fees paid to farmers for not planting their fields
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 483
Skill Level: Understand the Concepts
Difficulty Level: Moderate
44. Which of the following most accurately describes the recent financial crisis in the
United States?
a. a depression
b. a mild recession
c. a severe recession
d. an inflationary cycle
560
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: Apply What You Know
Difficulty Level: Difficult
45. If you support laissez-faire economic policies, you would generally favor
__________.
a. a reduction in economic regulation
b. an increase in economic regulation
c. an increase in the collective bargaining rights for labor unions
d. an increase in the tariffs assessed on imported goods
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 486
Skill Level: Apply What You Know
Difficulty Level: Difficult
46.When does the federal government’s fiscal year begin?
a. January 1
b. June 1
c. October 1
d. December 1
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 482
Skill Level: Remember the Facts
Difficulty Level: Easy
47. Which of the following is an example of monetary policy?
a. decreasing federal spending
b. increasing taxes on wealthy Americans
561
c. lowering interest rates
d. lowering state property and sales tax
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
Difficulty Level: Difficult
48. If government wanted to prevent or break up monopolies, it might do which of the
following?
a. reduce economic regulation
b. pass antitrust legislation
c. pass an economic stimulus package
d. reduce interest rates
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: Apply What You Know
Difficulty Level: Difficult
49. Most construction projects using federal funds are required to prepare
__________.
a. collective bargaining agreements
b. corporate social responsibility agreements
c. labor injunctions
d. environmental impact statements
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: Remember the Facts
Difficulty Level: Easy
562
50. Which of the following best characterizes the federal budget process?
a. complicated
c. nonpolitical
d. short-sighted
e. streamlined
Topic: Fiscal Policy
Learning Objective: LO 16.2: Outline the tools and impact of fiscal policy on
the economy.
Page Reference: 482 – 483
Skill Level: Analyze It
Difficulty Level: Difficult
51. In the early 1970s, the federal government took on a larger role in environmental
policy, starting with passage of __________.
a. the Toxic Substances Control Act
b. the Safe Drinking Water Act
c. the Clear Skies Initiative
d. the Clean Air and Clean Water Acts
Topic: Regulating the Economy
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 494
Skill Level: Remember the Facts
Difficulty Level: Easy
52. What is the purpose of government regulation of the economy?
a. to increase the revenue collected by the federal government
b. to increase the level of profits for multinational corporations
c. to minimize the costs of doing business for corporations
d. to minimize abuses and promote competition
Topic: Regulating the Economy
Learning Objective: LO 16.5: Categorize ways in which the federal government
seeks to regulate the economy.
Page Reference: 491
563
Skill Level: Analyze It
Difficulty Level: Difficult
53. Advocates of aggressive monetary policy contend that the key factor affecting the
economy’s performance is __________.
a. the federal funds rate
b. inflation
c. the money supply
d. tax expenditures
Topic: Monetary Policy
Learning Objective: LO 16.3: Outline the tools and impact of monetary policy
on the economy.
Page Reference: 484
Skill Level: Analyze It
Difficulty Level: Difficult
54. When did the deregulation movement have its greatest success?
a. in the early 1900s
b. in the 1930s
c. in the 1970s
d. in the 1990s
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
55. If a government wanted to use monetary policy to increase economic growth,
which of the following steps should be taken?
a. Decrease interest rates to increase the amount of money in supply.
b. Increase the amount of foreign currency kept on reserve in U.S. banks.
c. Increase the amount of public revenue for investment by raising taxes.
d. Increase government spending on public works projects.
564
