Economics Chapter 15 Flashcards
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Questions and Answers

An accurate statement about achieving a balanced budget would be that

  • most states allow a budget deficit
  • balanced budgets are not necessary
  • only federal government must balance the budget
  • most states require a balanced budget for state spending (correct)

    • What is one important distinction between classical economics and Keynesian economics?

    Classical economics teaches that free markets regulate themselves, and Keynesian economics teaches that government action affects the economy.

    All of the following are characteristics of classical economics EXCEPT

  • a significant role for government in the running of the economy (correct)
  • focus on long-term equilibrium
  • emphasis on free markets
  • the belief in self-regulating markets

    • The author of The General Theory of Employment, Interest, and Money was

    <p>John Keynes</p> Signup and view all the answers

    The purpose of expansionary fiscal policy is to

    <p>increase output</p> Signup and view all the answers

    Fiscal policy is carried out primarily by

    <p>the Federal government</p> Signup and view all the answers

    The crowding-out effect of expansionary fiscal policy suggests that

    <p>government spending is increasing at the expense of private investment</p> Signup and view all the answers

    All of the following are reasons why it is difficult to implement balanced fiscal policy EXCEPT

    <p>the need for discretionary spending</p> Signup and view all the answers

    Keynesian economics failed to deal successfully with

    <p>high inflation during the 1970s</p> Signup and view all the answers

    In contrast with classical economics, Keynesian economics,

    <p>takes a broader view of the economy</p> Signup and view all the answers

    The federal budget is put together

    <p>by Congress and the White House</p> Signup and view all the answers

    How does the 'crowding-out effect' influence businesses?

    <p>The federal government makes it harder for private businesses to borrow</p> Signup and view all the answers

    An example of expansionary fiscal policy would be

    <p>cutting taxes</p> Signup and view all the answers

    How did economic events during WWII demonstrate the principles of Keynesian economics?

    <p>As government spending increased, America came out of the Great Depression and moved toward higher productivity.</p> Signup and view all the answers

    A major advantage of the built-in or automatic stabilizers is that they

    <p>require no legislative action by Congress to be made effective</p> Signup and view all the answers

    All of the following are reasons why it is difficult to put balanced fiscal policy into practice EXCEPT

    <p>the need for discretionary spending</p> Signup and view all the answers

    Supporters of supply-side economics believe that

    <p>taxes have a strong negative influence on economic output</p> Signup and view all the answers

    When revenues exceed expenditures

    <p>there is a budget surplus</p> Signup and view all the answers

    Every hour, the federal government spends about

    <p>$200 million</p> Signup and view all the answers

    All of the following people are well-known classical economists EXCEPT

    <p>Arthur Laffer</p> Signup and view all the answers

    The political business cycle refers to the possibility that

    <p>politicians will manipulate the economy to enhance their chances of being reelected</p> Signup and view all the answers

    The national debt rose during Ronald Reagan's term as President for all of the following reasons EXCEPT

    <p>the cost of running a war</p> Signup and view all the answers

    When you buy a US Savings Bond, you

    <p>loan money to the government</p> Signup and view all the answers

    An example of contractionary fiscal policy would be

    <p>decreasing government spending</p> Signup and view all the answers

    An example of an automatic stabilizer is

    <p>taxes</p> Signup and view all the answers

    All of the following are problems associated with high national debt EXCEPT that it

    <p>makes investing in treasury bonds, notes, and bills very risky</p> Signup and view all the answers

    The national debt of the US is in excess of

    <p>18.1 trillion dollars</p> Signup and view all the answers

    The Office of Management and Budget

    <p>is responsible for deciding how much money each government agency receives in the budget</p> Signup and view all the answers

    Study Notes

    Balanced Budget

    • Most states require a balanced budget for their spending.

    Economic Theories

    • Classical economics believes that free markets self-regulate.
    • Keynesian economics emphasizes the impact of government action on the economy.
    • Classical economics features minimal government involvement in the economy, while Keynesian economics promotes government intervention.

    Key Figures

    • John Keynes authored "The General Theory of Employment, Interest, and Money," foundational to Keynesian economics.

    Fiscal Policy

    • Expansionary fiscal policy aims to increase economic output.
    • Fiscal policy is primarily carried out by the Federal government.
    • The federal budget is compiled by Congress and the White House.
    • Expansionary fiscal policy examples include cutting taxes and increasing government spending.

    Economic Effects

    • The crowding-out effect occurs when government spending limits private investment opportunities.
    • High inflation during the 1970s challenged Keynesian economics.
    • The "crowding-out effect" makes borrowing harder for businesses due to increased government expenditures.

    Stabilizers and Surplus

    • Automatic stabilizers function without needing Congressional approval.
    • A budget surplus exists when revenues exceed expenditures.
    • Each hour, the federal government spends approximately $200 million.

    National Debt

    • The national debt exceeds 18.1 trillion dollars.
    • Problems associated with high national debt do not include the risk of investing in treasury bonds.
    • Notable classical economists do not include Arthur Laffer.

    Political Influences

    • The political business cycle suggests politicians may manipulate the economy for re-election advantages.
    • The national debt rose during Ronald Reagan's presidency due to factors excluding war expenses.

    Bonds and Contractionary Policy

    • Purchasing a US Savings Bond equates to loaning money to the government.
    • Contractionary fiscal policy includes decreasing government spending.

    Automatic Stabilizers

    • Automatic stabilizers include taxes, which adjust without legislative action in response to economic conditions.

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    Explore key concepts in economics with these flashcards from Chapter 15. Review the distinctions between classical and Keynesian economics and understand the importance of balanced budgets. Perfect for students looking to reinforce their knowledge in economic theory.

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