American Government-Government and the Economy-2025

The federal government uses spending and tax policy to maintain economic stability and foster economic growth. What is this policy called?

Fiscal policy

What is the intended benefit of a law requiring seat belts in new cars?

To enhance consumer protections

The government decides to begin a massive effort to rebuild the nation's highways. Is this a taxing or spending policy?

Spending Policy

The government increases deductions for households with students attending college. Is this a taxing or spending policy?

Taxing Policy

The government has extended unemployment benefits for an additional six weeks. Is this a taxing or spending policy?

Spending Policy

The government has increased fees for consumption of gasoline. Is this a taxing or spending policy?

Taxing Policy

The federal government controls taxation and spending policy. These are both parts of ___ policy. If the government were to raise taxes and decrease spending, this would be an attempt to ___ economic growth. (Fill in the blanks)

Fiscal, Slow

What is one outcome the Federal Reserve might want to produce when purchasing government securities?

Fostering economic expansion

What is the effect when the Federal Reserve increases interest rates?

The cost of taking out loans increases

What is monetary policy?

Federal Reserve System decisions about the nation's money supply

Which entity uses monetary tools to regulate the money supply in the U.S.?

The Federal Reserve System

What are the two broad categories of fiscal policy aimed at regulating the economy?

Increased spending/reduced taxes to encourage growth; decreased spending/increased taxes to slow growth

During a recession, the government increases spending on public schools. This is an example of what type of fiscal policy?

Expansionary fiscal policy

Inflation is rising at 5% annually. The government raises corporate taxes to curb demand. What is the goal of this fiscal policy?

Slow economic growth

What tool does the Federal Reserve use to adjust the amount of money banks must hold and not lend?

Reserve requirements

The Federal Reserve lowers the reserve requirement. What is the intended economic effect?

Increase the money supply to encourage growth

How does selling government securities by the Federal Reserve affect the economy?

Reduces the money supply to slow growth

What is a key cost of government regulations on businesses?

Reduced corporate profits

The economy is in a deep recession with 10% unemployment. The government launches a $100 billion infrastructure plan. What is the fiscal policy objective?

Stimulate economic growth and reduce unemployment

The GDP has grown 7% in a year, causing overheating. The Federal Reserve raises interest rates by 0.5%. What is the monetary policy goal?

Cool the economy to prevent inflation

What does the term "contractionary monetary policy" refer to?

Actions by the Federal Reserve to reduce money supply and slow economic activity

The government cuts taxes for small businesses during a period of deflation. What is the intended fiscal policy outcome?

Increase consumer spending to boost prices

How does the Federal Reserve buying bonds affect interest rates?

Lowers interest rates to stimulate borrowing

A city faces economic decline after a major industry shuts down. The government increases spending on local job training. What type of fiscal policy is this?

Expansionary fiscal policy

The Federal Reserve increases the discount rate during a boom. What is the expected impact on consumer behavior?

Decreased borrowing and spending to stabilize the economy