Political Science - TEST 3

Political Science - TEST 4

True/False

____1.Last year I paid 30% in taxes and this year I paid 40%. My nominal tax increase is 33%.

____2.During times of inflation, households and firms are generally spending too little.

____3.In nominal terms, our public deficit is the highest it has ever been. But in real terms our current deficit is, historically speaking, just average.

____4.FICA is currently about 10.8%

____5.Having a “minimum” wage may raise unemployment because businesses have fewer dollars available to hire additional employees.

____6.A progressive tax means the more you make the more you pay.

____7.Although we technically refer to them as “firms” and “households” it’s the same as saying supply and demand.

____8.Monetary policy takes money from some people and redistributes it to other people.

____9.A regressive tax means the higher your income the less % of your income you pay in taxes

____10.A US Bond is just a fancy way of calling a loan that you make to the government.

____11.Privatization means you create your own retirement savings account, not the government.

____12.Last year I paid 30% in taxes and this year I paid 40%. My effective tax increase is 10%.

____13.Safety nets, like car airbags, social security, and group health insurance create “moral hazards.”

____14.Fiscal policy takes money from some people and redistributes it to other people.

____15.All levels of government, state, local, federal, can sell bonds and therefore accumulate debt.

Multiple Choice

____16.Of the total public debt, foreigners own about

a. / 1/2 / c. / 1/3rd
b. / 2/3rds / d. / 1/4th

____17.National debt is defined as

a. / the total amount owed by all individuals, corporations, and governments in the United States.
b. / the total amount owed by the federal government.
c. / a percentage of the gross national product not to exceed ten percent of all gross sales.
d. / money not available for use.

____18.One of the consequences of selling so many US Treasury Bonds is that it

a. / allows foreigners to receive tax free interest.
b. / encourages the United States Treasury to print cheap money.
c. / crowds out private borrowing.
d. / has a negative impact on the public debt.

____19.Which of the following is not a proposed solution to the social security problem

a. / cutting benefits / c. / raising the retirement age
b. / raising taxes / d. / raising the birth rate

____20.During inflation

a. / high unemployment, high spending / c. / high unemployment, low spending
b. / low unemployment, high spending / d. / low unemployment, low spending

____21.With a regressive tax

a. / all taxpayers pay the same tax rates. / c. / the more you make the more you pay
b. / people with higher incomes to pay higher tax rates. / d. / tax rates go down as income goes up.

____22.Monetary policy theory says that when the economy is faced with inflation, the government should

a. / expand the rate of growth of the money supply. / c. / decrease the rate of growth of the money supply.
b. / increase taxes. / d. / a and b.

____23.Fiscal policy theory says that when the economy enters a recession, the government should

a. / decrease taxes. / c. / increase taxes.
b. / increase expenditures. / d. / a and b.

____24.Monetary policy includes

a. / using changes in the amount of money in circulation to alter money markets.
b. / using changes in the amount of government expenditures to alter national economic variables.
c. / regulating tax rates to ensure controlled growth and low inflation.
d. / a and b.

____25.The population of working age people has declined mostly due to

a. / American women have fewer children / c. / increased numbers of retired people
b. / higher homicide rates among working age Americans / d. / immigration

____26.Fiscal policy includes

____27.Tax loopholes allow individuals and corporations to

a. / reduce their taxable income. / c. / register formal complaints to the Internal Revenue Service.
b. / choose the state to which they will pay taxes. / d. / a and b.

____28.The responsibility of the Federal Open Market Committee is to

a. / seek a balanced trade policy. / c. / decide how interest rates should be set by the Federal Reserve.
b. / negotiate with Congress in developing a fiscal budget. / d. / develop a rational trade policy through the United Nations Trade Information Commission.

____29.During a recession

a. / high unemployment, high spending / c. / high unemployment, low spending
b. / low unemployment, high spending / d. / low unemployment, low spending

____30.Every time the federal government spends more in a year than it collects in revenues from taxes

a. / it runs a budget deficit. / c. / state governments must finance 10% of the total deficit.
b. / Congress must auction government assets. / d. / the president has to order the Treasury to increase the money supply.

____31.An example of Keynesian economics would be

a. / reduced government spending during times of economic downturns.
b. / increased taxation during times of economic downturns.
c. / reduced government budget deficits during times of economic downturns.
d. / increased government spending during times of economic downturns.

____32.Fiscal policy theory says that when the economy is faced with rising prices and rising employment, the government should

a. / increase taxes. / c. / decrease taxes.
b. / decrease expenditures. / d. / a and b.

____33.Monetary policy theory says that when the economy enters a recession, the government should

a. / expand the rate of growth of the money supply. / c. / decrease the rate of growth of the money supply.
b. / increase taxes. / d. / a and b.

____34.To pay for the budget deficit, the federal government

a. / increases the money supply (M2).
b. / issues debt instruments in the form of U.S. Treasury bonds.
c. / must borrow money from the International Monetary Fund, an institution of the United Nations.
d. / both a and b.

____35.If the minimum wage increases, employeers costs increase and profits decline. To make up for this loss and stay in business, they must then _____ hiring, which _____ unemployment, and _____ prices which _____ the value of your money.

a. / increase, reduce, increase, reduce / c. / reduce, reduce, increase, increase
b. / increase, reduce, reduce, increase / d. / reduce, increase, increase, reduce

Short Answer (Answer ONLY three questions - 5 point each).

36.Explain why the creation of fiscal policy is much more political than monetary policy? Be sure to refer to “policy trade-offs” in your response.

37.Why do some countries have higher or lower tax rates than the United States? Is there a formula that tells governments what the “right” tax rate is? How do governments arrive at the tax rates that they do? What allows different populations to accept certain levels of taxation but not others?

38.Let’s say that this year, the United States government spent $3.9 trillion dollars but only had $2.5 trillion in revenue. Explain how this development relates to deficits, debt, bonds and “crowding out.”

39.Why do some countries offer more government services than others? If the government does not provide a service does that mean it will not be provided? Why or why not? Do governments which provide a service “care” more than those who do not? Why or why not?

40.Politicians have a different track record of fighting inflation and recession. Which condition have they been better at fighting? Why? Could politicians actually benefit from the existence of one of these conditions? Why?

Political Science - TEST 3

Answer Section

TRUE/FALSE

1.ANS:FPTS:1

2.ANS:FPTS:1

3.ANS:TPTS:1

4.ANS:TPTS:1

5.ANS:TPTS:1

6.ANS:FPTS:1

7.ANS:TPTS:1

8.ANS:FPTS:1

9.ANS:TPTS:1

10.ANS:TPTS:1

11.ANS:TPTS:1

12.ANS:FPTS:1

13.ANS:TPTS:1

14.ANS:TPTS:1

15.ANS:T

PTS:1

MULTIPLE CHOICE

16.ANS:CPTS:1TOP:The Public Debt and the Disappearing Deficit

17.ANS:BPTS:1TOP:The Public Debt and the Disappearing Deficit

18.ANS:CPTS:1TOP:The Public Debt and the Disappearing Deficit

19.ANS:DPTS:1

20.ANS:BPTS:1

21.ANS:DPTS:1TOP:Social Security: How Long Will It Last?

22.ANS:CPTS:1TOP:The Politics of Fiscal and Monetary Policy

23.ANS:DPTS:1TOP:The Politics of Fiscal and Monetary Policy

24.ANS:APTS:1TOP:The Politics of Fiscal and Monetary Policy

25.ANS:APTS:1

26.ANS:DPTS:1TOP:The Politics of Fiscal and Monetary Policy

27.ANS:APTS:1TOP:The Politics of Taxes and Subsidies

28.ANS:CPTS:1TOP:The Politics of Fiscal and Monetary Policy

29.ANS:CPTS:1

30.ANS:APTS:1TOP:The Public Debt and the Disappearing Deficit

31.ANS:DPTS:1TOP:The Politics of Fiscal and Monetary Policy

32.ANS:DPTS:1TOP:The Politics of Fiscal and Monetary Policy

33.ANS:APTS:1TOP:The Politics of Fiscal and Monetary Policy

34.ANS:BPTS:1TOP:The Public Debt and the Disappearing Deficit

35.ANS:DPTS:1

SHORT ANSWER

36.ANS:

PTS:1

37.ANS:

PTS:1

38.ANS:

PTS:1

39.ANS:

PTS:1

40.ANS:

PTS:1