2 The federal government gets its money from several sources. What is the single largest source of federal revenue?

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1 Name: ate: 1 The principle behind a progressive tax is that all citizens should be taxed equally. people with more money should be taxed at a higher rate. people with higher incomes should be taxed at a higher rate. people who benefit most from government spending should be taxed at a higher rate. 2 The federal government gets its money from several sources. What is the single largest source of federal revenue? personal income taxes corporate income taxes Social Security and other payroll taxes loans 3 This week you worked 20 hours at a salary of $8 an hour. You receive a paycheck for $ The difference between what you earned and what you were paid is due to personal exemptions. tax deductions. tax withholding. excise taxes. 4 Which of the following accounts for the largest share of federal spending? entitlements discretionary spending national defense interest on the national debt 5 What happens to the Social Security taxes that are taken out of your paycheck today? They are put into a fund to pay for your future retirement needs. They become part of the federal budget and are subject to discretionary spending. They are used to make payments to people who are currently retired. They are used to help pay for medical services for low income families. opyright by Pearson Education Page 1 of 5

2 6 Which of the following taxes is most commonly used to pay public school teachers? federal income tax local property tax corporate income tax state sales tax 7 The federal government uses fiscal policy to collect needed revenues. balance its budget. create a fair tax system. influence economic growth. 8 uring a deep recession, the President of the United States announces a stimulus plan of federal government payments to individuals to get the economy going again. Which of the following is the President trying to do? apply supply-side economics apply expansionary fiscal policy reduce the money supply reduce the national debt 9 uring economic hard times, the government should use its powers to help the nation reach its full productive capacity. Which economist would have been most likely to agree with these words? dam Smith Milton Friedman Thomas Malthus John Maynard Keynes 10 s President, Ronald Reagan rejected the idea that tax cuts could increase government revenues. government spending could end a recession. the free market should regulate itself. the supply of goods drives the economy. opyright by Pearson Education Page 2 of 5

3 11 Which of the following government actions is most likely to cause a budget deficit? raising both taxes and spending cutting taxes without cutting spending raising taxes without raising spending cutting both taxes and spending 12 irections: Use the graph to answer the following question. ased on the graph, which statement is true? The national debt roughly doubled between 1950 and 1960, reflecting a recession. The national debt lessened considerably in the 1990s. The national debt s rate of increase accelerated in the early 2000s. The national debt s total first crossed the $1 trillion mark in etween 1960 and 1980, the national debt, as a percentage of GP, fell from about 56 percent to about 33 percent. What must have happened at that time? The economy grew. Inflation decreased. Government spending decreased. Federal deficits decreased. opyright by Pearson Education Page 3 of 5

4 14 The Federal Reserve System, or the Fed, is best described as a branch of the U.S. Treasury epartment. a national bank owned by the federal government. a system of state banks. a group of private banks under federal control. 15 You deposit your paycheck at a local bank. How is the Federal Reserve involved? The Fed will issue the value of the check in paper currency. The Fed will add the value of the check to the money supply. The Fed will clear the check. The Fed will guarantee the deposit. 16 Which monetary policy tool is used most often by the Federal Reserve? printing additional money buying or selling government securities raising or lowering bank reserve requirements adjusting the money multiplier formula 17 recession begins. The Fed wants to lessen its effects. What happens next, in correct chronological order? inside lag, policy change, outside lag, correction correction, inside lag, policy change, outside lag outside lag, correction, inside lag, policy change policy change, outside lag, correction, inside lag 18 Fiscal policy is conducted by the Federal Reserve oard. individual banks. the federal government. private businesses. opyright by Pearson Education Page 4 of 5

5 19 What does the existence of the Federal Reserve System suggest? that economists have fully embraced classical economics that economists can predict every economic change that economists believe the economy can be stabilized that economists think that the money supply is the most important part of the economy 20 Why does a bank sometimes hold excess reserves? to make interest rates go up to be sure it can meet customer demands to make check clearing easier to protect themselves from the high cost of borrowing opyright by Pearson Education Page 5 of 5