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Questions and Answers
Fiscal policy refers to government policies to stabilize the economy of a country through changes to which 2 of the following?
Fiscal policy refers to government policies to stabilize the economy of a country through changes to which 2 of the following?
- Interest rates
- Government spending (correct)
- Welfare programs
- Taxes (correct)
Fiscal policy involves budgetary actions by the Federal Government to 'stimulate the economy' or 'reign in inflation.'
Fiscal policy involves budgetary actions by the Federal Government to 'stimulate the economy' or 'reign in inflation.'
True (A)
The 'ratchet effect' refers to the problem of 'sticky prices' which prevents the price level from falling when the government decreases spending to fight demand-pull inflation.
The 'ratchet effect' refers to the problem of 'sticky prices' which prevents the price level from falling when the government decreases spending to fight demand-pull inflation.
True (A)
Automatic fiscal policy stabilizers include income taxes going down automatically during recessions.
Automatic fiscal policy stabilizers include income taxes going down automatically during recessions.
The fiscal policy described above is an example of discretionary fiscal policy designed to expand GDP to fight a recession.
The fiscal policy described above is an example of discretionary fiscal policy designed to expand GDP to fight a recession.
Crowding-out is when the federal government's expansionary fiscal policy raises real interest rates on private sector borrowers.
Crowding-out is when the federal government's expansionary fiscal policy raises real interest rates on private sector borrowers.
The federal government borrows money by selling Treasury bills, Treasury notes, Treasury bonds, and US savings bonds.
The federal government borrows money by selling Treasury bills, Treasury notes, Treasury bonds, and US savings bonds.
Match the economic theories with their main principles:
Match the economic theories with their main principles:
Demand-pull inflation eventually results in higher wages, which eventually results in decreased short-run aggregate supply.
Demand-pull inflation eventually results in higher wages, which eventually results in decreased short-run aggregate supply.
Cost-push inflation eventually results in more unemployment, which eventually results in lower wages.
Cost-push inflation eventually results in more unemployment, which eventually results in lower wages.
Velocity of money refers to the average number of times per year a dollar is spent on final goods and services.
Velocity of money refers to the average number of times per year a dollar is spent on final goods and services.
When none of the presidential candidates receives a majority of the votes in the electoral college, the winner is chosen by the ______.
When none of the presidential candidates receives a majority of the votes in the electoral college, the winner is chosen by the ______.
Fiscal policies refer to the government's power to?
Fiscal policies refer to the government's power to?
Which of the following best describes pork barrel politics?
Which of the following best describes pork barrel politics?
Congress is most likely to exert oversight of the executive bureaucracy in which of the following ways?
Congress is most likely to exert oversight of the executive bureaucracy in which of the following ways?
When a child's parents both identify strongly with the same political party, the child will most likely?
When a child's parents both identify strongly with the same political party, the child will most likely?
Which of the following is a way Congress can influence the federal judiciary?
Which of the following is a way Congress can influence the federal judiciary?
In which of the following circumstances would the rule of four be applied?
In which of the following circumstances would the rule of four be applied?
In the Federalist Papers, James Madison argues that political liberty is best protected by?
In the Federalist Papers, James Madison argues that political liberty is best protected by?
The process known as front-loading refers to?
The process known as front-loading refers to?
The Bipartisan Campaign Reform Act of 2002 (McCain-Feingold) did which of the following?
The Bipartisan Campaign Reform Act of 2002 (McCain-Feingold) did which of the following?
Which of the following household purchases will be counted as part of gross private domestic investment?
Which of the following household purchases will be counted as part of gross private domestic investment?
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Study Notes
Fiscal Policy Fundamentals
- Fiscal policy involves government spending and taxes to stabilize the economy.
- Actions include modifying taxes or adjusting government expenditure.
- Discretionary fiscal policy can expand GDP during recessions.
Economic Concepts
- The "ratchet effect" leads to sticky prices, inhibiting price level decreases during spending cuts.
- Automatic stabilizers: income taxes lower and welfare payments rise automatically in recessions.
- Crowding-out occurs when government borrowing raises real interest rates, affecting private sector loans.
Government Borrowing
- The federal government borrows through Treasury bills, notes, bonds, and savings bonds.
Economic Theories
- Monetarist theory advocates for central bank control of the money supply for stability.
- Keynesian theory supports fiscal measures to adjust aggregate demand against economic fluctuations.
- Classical theory suggests a self-correcting economy, discouraging government intervention.
- Supply-side theory promotes production through tax cuts and deregulation.
Inflation Dynamics
- Demand-pull inflation leads to higher wages and eventually decreases short-run aggregate supply (SRAS).
- Cost-push inflation can increase unemployment, reduce wages, and boost SRAS, leading to a lower price level over time.
- Velocity of money measures how often a dollar is spent on final goods annually.
Government Structure and Elections
- If no presidential candidate achieves a majority in the Electoral College, the House of Representatives selects the winner.
- Pork barrel politics involves Congress negotiating funding for parochial projects without national benefits.
Congressional Oversight
- Congress can oversee executive agencies primarily by controlling their budgets.
- Congress influences federal judiciary through modifications to appellate jurisdiction.
Political Socialization
- Children often align politically with the party identification of both parents.
Judicial Processes
- The “rule of four” refers to four Supreme Court justices agreeing to hear a case.
- Front-loading indicates states selecting early primary dates on the electoral calendar.
Campaign Finance
- The Bipartisan Campaign Reform Act (McCain-Feingold) prohibits soft money donations to national parties, impacting campaign financing.
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