Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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Part 1: Main Idea
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1.
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What term is used for a government plan to reduce aggregate demand and slow the
economy?
a. | contractionary fiscal policy | b. | discretionary fiscal policy | c. | expansionary fiscal
policy | d. | stabilizing fiscal policy |
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2.
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What are the two basic tools that the federal government uses to influence the
economy?
a. | entitlements and spending | b. | entitlements and wages | c. | taxation and
spending | d. | taxation and wages |
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3.
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What is the name for the use of government revenue and spending to try to
stabilize the economy by influencing aggregate demand?
a. | demand-side fiscal policy | b. | laissez-faire economics | c. | the law of aggregate
demand | d. | spending multiplier effect |
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4.
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What is the name for the use of government revenue and spending to try to
stabilize the economy by stimulating aggregate supply?
a. | anti-stagflation policy | b. | the Keynesian theory | c. | the law of aggregate
supply | d. | supply-side fiscal policy |
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5.
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If the government spends more than it takes in, what is that called?
a. | balanced budget | b. | budget deficit | c. | budget
surplus | d. | discretionary budget |
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6.
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Which is a situation in which spending for a national emergency contributed to
the deficit?
a. | highway repairs after a bad winter | b. | military spending in the Iraq
war | c. | repairs to cracks on the Space Shuttle | d. | unemployment compensation during a
recession |
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7.
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What is the government doing when it issues bonds?
a. | investing in the stock market | b. | paying the growing interest on the national
debt | c. | borrowing money it will have to repay in the future | d. | encouraging
foreigners to invest in this country |
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8.
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What are government trust funds?
a. | moneys that are held for specific purposes to be expended at a later
date | b. | moneys that are invested in Treasury bills, Treasury notes, or Treasury
bonds | c. | moneys that are held for minor children to be paid out when the children become
adults | d. | moneys that the government invests in common and preferred
stocks |
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9.
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When individual investors put more money in government bonds and less in
corporate bonds, what is that an example of?
a. | budget balancing | b. | crowding-out effect | c. | deficit
spending | d. | Keynesian economics |
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10.
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Which is the opposite of discretionary fiscal policy?
a. | automatic stabilizers | b. | contractionary fiscal
policy | c. | expansionary fiscal policy | d. | rational
expectations |
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11.
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Which might be used as part of discretionary fiscal policy?
a. | corporate income tax | b. | entitlements | c. | public works
funding | d. | unemployment compensation |
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12.
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If the government wants to expand the economy, what action might it take?
a. | begin construction of a new dam | b. | maintain the level of funding for highway
repairs | c. | increase income tax rates | d. | reduce grants-in-aid to
states |
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13.
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If the government wants to slow down the economy, what action might it
take?
a. | hire workers to create a new national park | b. | offer states federal
funds for textbooks | c. | double the excise tax on sales of
gasoline | d. | lower corporate income tax rates |
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14.
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Which policy change would probably have the fastest effect on the
economy?
a. | a one-time rebate of individual income taxes | b. | a change in the
assessment formula for property taxes | c. | a government contract to purchase jets for four
years | d. | a plan to reduce government staff by not replacing
retirees |
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15.
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How did the Great Depression affect the thinking of John Maynard Keynes and
other economists?
a. | It caused them to adopt more laissez-faire policies. | b. | It caused them to
advocate reductions in government spending. | c. | It caused them to advocate higher income tax
rates. | d. | It caused them to favor government intervention in the
economy. |
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16.
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Which action is an example of demand-side fiscal policy?
a. | decreased government regulation | b. | increased government
spending | c. | incentives for new businesses | d. | wage controls to halt
inflation |
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17.
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Which action is an example of supply-side fiscal policy?
a. | income tax rebates | b. | increased government
regulation | c. | increased government spending | d. | decreased corporate tax
rates |
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18.
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What is the difference between the budget deficit and the national debt?
a. | The deficit is the money the government owes; the debt is owed to the
government. | b. | The debt is the money the government owes; the deficit is owed to the
government. | c. | The national debt is a total that includes many years of budget
deficits. | d. | The budget deficit is a total that includes many years of national
debts. |
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19.
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If the government takes in more revenue than it spends, what is that
called?
a. | balanced budget | b. | budget deficit | c. | budget
surplus | d. | discretionary budget |
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20.
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What is one current problem associated with having a high national debt?
a. | The government comes under the influence of bankers. | b. | The government is
finding it more difficult to get credit. | c. | The government had to downsize the staff in the
Treasury Department. | d. | The government must collect taxes just to pay
the interest. |
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21.
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What do discretionary spending and discretionary fiscal policy have in
common?
a. | Both are required by current law. | b. | Both are controlled by the
president. | c. | Both involve government choices. | d. | Both increase tax
rates. |
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22.
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Which would be considered an automatic stabilizer?
a. | highway spending | b. | income tax | c. | military
spending | d. | sales tax |
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23.
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Which is an example of deficit spending because of a national emergency?
a. | construction of bridges over the Mississippi | b. | supplemental
unemployment benefits | c. | cleanup of New York City after the 9/11
attacks | d. | jobs program for unemployed youth in the city |
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24.
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During the Great Depression, the Tennessee Valley Authority hired unemployed
workers to build dams in Tennessee, thus bringing electrical power to the area. What causes of
deficit spending does this example illustrate?
a. | national emergency and need for public goods and services | b. | need for public
goods and services and stabilization of the economy | c. | stabilization of the economy and role of
government in society | d. | role of government in society and national
emergency |
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25.
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Who are most of the foreign investors who hold U.S. Treasury bonds?
a. | individual investors | b. | foreign governments | c. | foreign
corporations | d. | central banks |
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26.
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When the government borrows from the Social Security trust fund, what is
happening?
a. | The government is borrowing from retirees. | b. | The government is
borrowing from working taxpayers. | c. | The government is borrowing from
itself. | d. | The government is borrowing from bondholders. |
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Essay
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Part 3: Extended Response
Answer the following questions on the back
of this paper or on a separate sheet of paper.
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27.
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How has U.S. fiscal policy changed over the last 80 years, and what have been
the results of those changes?
Think About:
- fiscal policy before the Great
Depression
- fiscal policy during the Great Depression
- fiscal policy in recent
decades
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28.
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Suppose that the economy is in a recession. What are several actions that the
government might take to implement an expansionary fiscal policy?
Think About:
- the characteristics of a recession
- changes the government might make to tax
policy
- changes the government might make to spending policy
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