Pt 3: Chapter 15 Notes

Question 1

Does the government have a role in the economy today?

Answer 1

yes

Question 2

What is the government’s relationship to the economy in the US?

Answer 2

Government has an important role in regulating economy

Question 3

How is efficiency achieved through government intervention?

Answer 3

• promoting competition
• making business pay for indirect costs
• deregulation and underregulation

Question 4

How is equity achieved through government intervention?

Answer 4

Balance interests of society against the interests of efficiency specific to a certain corporation

Question 5

Output of goods and services being the highest possible given the amount of input used

Answer 5

Economic efficiency

Question 6

Costs of production that are incurred by society

Answer 6

Externality

Question 7

Conservatives tend to value what?

Answer 7

efficiency (over equity)

Question 8

The older wave: This view included dual use of federal lands for recreation and resource use

Answer 8

Conservatism

Question 9

The newer wave: This view includes clean air, water, and land legislation. EPA of 1970, and global warming and energy policy

Answer 9

Environmentalism

Question 10

Which country uses the most CO2 per person?

Answer 10

US

Question 11

How does government promote business?

Answer 11

• government provided loans
• special tax breaks
• subsidies
• traditional services: education, transportation, and defense

Question 12

How does government promote labor?

Answer 12

• National Labor Relations Act of 1935
• minimum wage
• maximum work week
• unemployment benefits
• nondiscriminatory hiring practices

Question 13

How does government promote agriculture?

Answer 13

• Homestead act of 1862
• farm programs to eliminate some farming risk
• federal payments
• american farmers among the most heavily subsidized in the world

Question 14

Federal payments account for more than a ___ of net agricultural income

Answer 14

1/5

Question 15

This emphasizes the consumer (demand) component of the supply-demand equation

Answer 15

Demand-side policy

Question 16

Demand-side policy includes what during economic depression or recession?

Answer 16

Government spending to alleviate it

Question 17

Demand-side policy is generally preferred by who?

Answer 17

Democratic lawmakers

Question 18

Demand-side policy can result in ___ budget deficits and an ____ national debt

Answer 18

Higher budget deficits

Increased national debt

Question 19

This policy emphasizes the business (supply) component of the supply-demand equation

Answer 19

Supply-side policy

Question 20

Supply-side policy includes tax breaks for who ? to encourage business investment with resulting increasing in employment and income

Answer 20

Tax breaks for firms and upper-income individuals

Question 21

Supply-side policy is generally preferred by who?

Answer 21

Republican lawmakers

Question 22

Supply-side policy can result in ____ budget deficits and an increased ____

Answer 22

higher budget deficits

increased national debt

Question 23

During a recession, the demand side would want to do what? the supply side?

Answer 23

Recession:

• demand: increase spending
• supply: cut business taxes

Question 24

In an inflation, the demand side would want to do what? the supply side?

Answer 24

Inflation:

• demand: decrease spending
• supply: increase business taxes

Question 25

Republican and Democratic lawmakers are far apart on how best to deal with recessionary periods, but both parties do what?

Answer 25

enact policies that increase the national debt

Question 26

What is the difference between budget deficit and national debt?

Answer 26

Budget deficit is how much you're short in a fiscal year, national debt is how much you owe in total (sum of all budget deficits and interests incurred)

Question 27

Revenue decisions (taxing and spending) of US

Answer 27

Fiscal policy

Question 28

The money supply (almost exclusively through interest rates)

Answer 28

Monetary policy

Question 29

This entity has control over the money supply by: - raising/lowering the cash reserve required of member banks - raise/lower interest rate on member banks

Answer 29

The fed (eral reserve?)

Question 30

The Fed can fight an economic downturn by decreasing interest rate on loans to member banks and buying government securities. They can also do this, which they do when they think the economy is in a bad place

Answer 30

Lower reserve rate

Question 31

Who is responsible for setting monetary policy?

Answer 31

The Federal Reserve

Question 32

What does the fed do to control an inflation, which is the opposite of what they do when fighting an economic downturn?

Answer 32

- Increasing interest rate on loans to member banks - raising reserve rate - selling government securities (bonds, notes)