LESSON SEVEN. Governments and the Economy
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1 ECON (ENT) COURSE LESSON SEVEN Governments and the Economy CHAPTER 16 Governments Spends, Collects, and Owes CHAPTER 17 Stabilizing the National Economy Lesson Seven Governments and the Economy 277
2 EXERCISES Matching (26 points) From the list below, select the term that matches each of the following statement 1. when the unemployment rate is less than 5 percent 2. provides money to needy single parents raising young children 3. federal programs that include food stamps, veterans benefits, and payments to the aged, blind, and disabled 4. government program that extends payments for medical care to workers injured on the job 5. government policy of spending more than it brings in through revenues 6. economic side-effects that affect an uninvolved third party 7. when government spending exceeds government receipts 8. publicly used facilities built by the government with public money 9. total amount of outstanding debt for the federal government 10. when government receipts is larger than expenditures during the fiscal year 11. periods between the time fiscal policy is enacted and the time it becomes effective 12. goods or services that the government supplies to its citizens 13. transactions by people who do not report earnings A. public goods B. public-works projects C. budget deficit D. budget surplus E. national debt F. Temporary Assistance to Needy Families G. externalities H. workers compensation I. underground economy J. full employment K. time lags L. deficit financing M. Supplemental Security Income Lesson Seven Governments and the Economy 307
3 Multiple Choice (44 points) 1. Monetarism is linked with the economist A. Milton Friedman. B. John Maynard Keynes. C. Karl Marx. D. Adam Smith. 2. Monetarists believe that A. fiscal policy is not effective. B. All choices are correct. C. the government should not operate with deficits each year. D. the Fed should increase the supply of money 3 to 5 percent per year. 3. The Federal Reserve followed strict monetarist policy A. in the early 1980s. B. in the 1960s. C. in the late 1990s. D. at its inception in Which of the following is not a goal of the federal government? A. control prices B. promote a stable, legal environment for economic activity C. promote the general well-being of all citizens D. protect individual rights 5. Which of the following is a public good that only the federal government provides? A. national defense B. education C. roads D. law enforcement 6. A museum is an example of a A. social insurance program. B. demerit good. C. merit good. D. public-assistance program. 7. The theories of John Maynard Keynes were developed during, and influenced by, A. World War I. B. the presidency of Ronald Reagan. C. the presidency of John F. Kennedy. D. the Great Depression. 308 ECON (ENT) COURSE --Economics and the Free Enterprise System
4 8. Which program pays for health care for low-income or disabled people? A. Medicaid B. Social Security C. Supplement Medical Pay D. Medicare 9. The largest expenditure for the federal government is A. income security, Social Security, and Medicare. B. education. C. transportation. D. national defense. 10. The largest expenditure for state and local governments is A. education. B. housing. C. health and hospitals. D. public welfare. 11. When the leakages and injections of the economy are balanced, it is called A. equilibrium. B. a balanced budget. C. circular regularity. D. fiscal policy. 12. The gas tax is an example of the taxation principle of A. benefits-received. B. proportional taxation. C. progressive taxation. D. ability-to-pay. 13. The cigarette tax is an example of a tax. A. progressive B. regressive C. proportional D. sales 14. Supporters of fiscal policy believe that unemployment can be reduced by A. decreasing trade. B. increasing trade. C. increasing taxes or reducing government spending. D. decreasing taxes or increasing government spending. 15. John Maynard Keynes believed that A. the supply of money should not be adjusted by the government. B. manipulating the economy would encourage economically weak businesses. C. the love of money was the root of all evil. D. the government should intervene in the economy by adjusting the amounts that it taxes and spends. Lesson Seven Governments and the Economy 309
5 16. The percentage of civilian labor force that is without jobs but actively looking for work is called A. the frictionally unemployed. B. the unemployment rate. C. underground employees. D. the full employment rate. 17. A person between jobs because of a firing, layoff, or voluntary search for a new job is unemployed. A. cyclically B. frictionally C. seasonally D. structurally 18. When prices rise due to excessive business and consumer demand, it is called A. demand-pull inflation. B. cost-push inflation. C. stagflation. D. deflation. 19. When prices rise due to wage demands and excessive profit motives, it is called A. demand-pull inflation. B. stagflation. C. cost-push inflation. D. deflation. 20. When rising prices occur simultaneously with high unemployment, it is called A. inflated unemployment. B. demand-pull inflation. C. stagflation. D. hyper-inflation. 21. Money that is removed from the circular flow of income through either saving or taxation is referred to as a A. leakage. B. loss of flow. C. injection. D. transfer. 22. Supporters of fiscal policy believe that inflation can be reduced by A. decreasing trade. B. decreasing taxes or increasing government spending. C. increasing taxes or reducing government spending. D. increasing trade. 310 ECON (ENT) COURSE --Economics and the Free Enterprise System
6 23. Medicaid is a state and federal program that helps pay health care costs for which particular group of people in the U.S.? A. low-income or disabled people B. for the aged (those over 65 years of age) C. veterans of the armed forces D. homes of divorced families 24. Medicare is a government program that provides health for which particular group of people in the U.S.? A. for the aged (those over 65 years of age) B. low-income or disabled people C. veterans of the armed forces D. homes of divorced families 25. By decreasing taxes or increasing government spending, supporters of fiscal policy believe that unemployment can be. A. reduced B. solved C. terminated D. cyclical 26. Demand-pull inflation is when. A. prices rise due to excessive business and consumer demand B. prices rise simultaneously with high unemployment C. leakages and injections of the economy are not balanced D. higher wages and profits push up prices Lesson Seven Governments and the Economy 311
7 Short Answer (4 points each for a total of 8 points): The following are examples of unemployment. Describe the type of unemployment each example represents and give your reason for making that choice (refer to TABLE 35 - TYPES OF UNEMPLOYMENT, on Chapter 17, if you need help). 1. Jim, who sews custom emblems on hats and shirts, is laid off as the company switches to a computerized system which can operate unmanned. 2. John, a migrant farm worker, is often unemployed in January and February. 3. Bob had quit his job in Seattle and is looking for similar work after relocating to Phoenix. 4. Bill, who builds aircraft for Boeing, has been laid off as sales have recently slumped. 312 ECON (ENT) COURSE --Economics and the Free Enterprise System
8 Essays (22 points) There are two Essay questions below. Answer each one. Each essay is worth 11 points for a total of 22 points. 1. Explain the two principles of taxation and give an example of each. Which principle do you think is the fairest and why? Lesson Seven Governments and the Economy 313
9 2. If you were the president or a member of Congress, how would you eliminate the budget deficit? Would you raise taxes, cut spending, or both? If you decide to raise taxes, who will pay the most? If you choose to reduce spending, what programs would you cut or reduce? Justify any proposals you would enact and address any side-effects that might occur. 314 ECON (ENT) COURSE --Economics and the Free Enterprise System
10 To submit your written answer(s) to Moodle, use the appropriate textbox(es) provided. You may find it easier to complete this assignment by typing your answer to the question in a program such as MS Word first then copying and pasting your answer into the textbox in Moodle. To submit your writing(s) for grading, after you have pasted the text(s) of your completed assignment(s) into Moodle s textbox(es) and you are sure you are ready to submit it, click the button. The assignment will be sent to your instructor for grading. Lesson Seven Governments and the Economy 315
11 316 ECON (ENT) COURSE --Economics and the Free Enterprise System
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