292. The Federal Reserve Bank operates:
293. Which of the following statements about government deficit spending is most accurate?
294. While scanning the movies section in your local online newspaper, you click on the
business section by mistake. While you’re there, you quickly scan a report that says government
spending will again exceed tax revenues in the current year. This means that the:
295. Which of the following statements about the Federal Reserve Bank (the Fed) is most
accurate?
296. During the recent economic crisis, Presidents George W. Bush and Barack Obama
increased government spending by trillions, in order to revive the ailing economy. Their strategy
followed the economic theory known as:
297. Keynesian economic theory suggests:
298. Senator Gong Lee is alarmed at the state of the economy. Unemployment is high and
GDP is low. Senator Lee has called for Congress to take action to increase government spending
and cut taxes in order to stimulate the economy. The actions called for by Senator Lee are
examples of:
299. Your professor showed you an online video of the chair of the Federal Reserve Bank
speaking to the American public. The message she is conveying indicates that Fed economists
are worried about inflation and believe the best course of action would be to slow the economy.
Which of the following policies is the Fed most likely to pursue?
300. Ben recently lost his job at a major U.S. auto plant in one of the rust belt states. After
looking unsuccessfully for work in a similar industry for several months, he plans to start
interviewing with road and bridge repair companies. He speculates that if the government begins
to contract with companies that repair highways and bridges, he may find steady work, at least in
the short term. Which of the following statements best describes the strategy behind his
thoughts?
301. Lance owns Lance Lawns Irrigation Systems, LLC, a company that installs and maintains
underground lawn irrigation systems. Business is down due to new housing starts being
negatively impacted by a deep recession. To make things worse, his bank called yesterday to
inform him that his credit limit (interest fee of 12.5%) will be cut from $30,000 per year to $15,000
per year, unless he is willing to pay a higher interest rate of 20%. As Lance drives to the first job
this morning, he knows that his last task of the day will be to reduce the hours for his two
employees. He can’t afford to work employees eight hours per day, with only a $15,000 line of
credit. Which of the following strategies will help Lance’s situation?
302. In one of his weekly broadcasts, the Federal Reserve Chairman remarked that inflation
had begun to tick upward. However, unemployment in the U.S. was still quite high and economic
growth had slowed. With short-term interest rates close to 0 (zero), the Chair did not visualize
that ____________ policy would be able to do anything for the high unemployment problem. He
felt that _______ policy would be more useful for bolstering employment, but that would require
local and state governments and the federal government to provide tax breaks for corporations.
303. If businesses are producing at capacity, and the nation is experiencing almost full
employment (a very low rate of unemployment—less than 2%), the Fed may decide to:
Mini-Case
Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting
firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so
he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again
started his own business, which he named Giganeers Consulting. The company struggled at first,
and almost went under midway through its second year. However, Gig never lost faith, the
company survived, and it soon developed a growing reputation for quality work and dependable
service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired
additional employees over the next few years to keep up with the increasing workload. His
company, which started with only Gig and two other full-time workers, now provides jobs for 43
full-time employees as well as many part-time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its
first drop in business since its very early years. Gig is convinced that the problem is not with his
company, but rather due to a downturn in the U.S. economy. He heard a national broadcast last
week reporting that the value of the total output of final goods and services in the U.S. declined
over the last quarter. The news anchor went on to state that many economists believe that this
downward trend is likely to continue for several more months. Gig is concerned that he will have
to lay off some of his employees if the economy doesn’t improve. He hopes that the government
does something soon to put the economy back on track.
304. Gig started Giganeers to earn a profit, but by working hard and increasing his market
share, he was able to create jobs for others. This is an example of the ______________ concept.
305. Gig’s native country of Frinezia was much different from the United States. In addition to
its higher tax rates, the government offered more extensive social programs that were designed
to redistribute income and reduce inequality. Although small businesses were privately owned
and operated in Frinezia, many basic industries were owned and operated by the government.
From this information, you would classify Frinezia’s economic system as _________.
306. The broadcast that reported a decline in total output for the United States probably got
some of its information from the government’s measurement of _________.
307. The broadcast cited forecasts that national output might continue to fall in the future. If
total output shows decline for two consecutive quarters, economists would classify this as a
___________.
308. Gig recently heard a radio report that the Fed will try to help get the U.S. economy back
on track. If the Fed takes action, Gig would likely see:
309. Besides the slowdown in the general economy, Giganeers faces threats of competition
from several other companies that provide engineering consulting services. In order to gain more
business, Gig tries to convince potential clients that his company offers better service than the
competition. He has advertised heavily in professional magazines, often quoting some of his
highly satisfied clients. The market Giganeers operates in is an example of:
310. Discuss the views of economist Adam Smith. How does the “invisible hand” philosophy
suggested by Smith benefit society as a whole?
311. Explain the significance of “price” in a free-market economic system.
312. Identify and describe the four basic rights that form the foundation of capitalism.
313. When describing the state of the U.S. economy, reporters often refer to the nation’s GDP,
its unemployment rate, and the CPI. Explain what each of these terms means and why each
measure is significant.
314. Explain the difference between fiscal policy and monetary policy. Discuss how each of
these approaches can be used to influence the state of the economy.