Chapter 12 Quiz

1. Based on the map, what can be found in Washington, D.C., that is NOT found in Minneapolis?

• a Federal Reserve bank

• the Securities and Exchange Commission

• the Fed's Board of Governors

• a Federal Reserve district

2. How does the role of the Department of Labor (DOL) in the economy differ from that of the Securities and Exchange Commission (SEC)?

• The DOL oversees trade issues, while the SEC is the nation's central bank.
• The DOL protects workers, while the SEC oversees the stock market.
• The DOL promotes economic growth, while the SEC regulates that growth.
• The DOL addresses labor issues around the world, while the SEC protects workers in the U.S.

3. Suppose the current federal funds interest rate is 5 percent, and the Federal Reserve changes it to 4.5 percent. In theory, why might this help the economy grow?

• People will be less likely to borrow money, which will grow the economy.
• The amount of credit in the economy will decrease.
• Money will be less expensive, so more companies will borrow and invest.
• Lower interest rates usually lead to lower prices.

4. If the economy is not growing, one reasonable conclusion would be that

• federal spending should be cut.
• the economy is in the midst of a recession.
• taxes should be raised.
• full employment has been achieved.

5. How do tax increases slow economic growth?

• When federal taxes increase, so do State and local taxes.
• People get paid much less for the work they do.
• The government can't spend all the money it collects in taxes.
• People have less money to spend in the economy.

6. The Employment Opportunity Act, the Environmental Protection Act, and the Pure Food and Drug Act are examples of:

• federal laws designed to protect consumers from harm.
• the federal government’s attempts to regulate big business.
• federal laws that are designed to curb spending by the federal government.
• the federal government’s response to changes in the economy.

7. What is the primary action taken by the federal government when inflation is wide-spread in the American economy?

• raising taxes on foreign governments.
• lowering tariff rates on imports.
• raising taxes on individuals and businesses.
• closing all state banks.

8. A major tool of the federal government in using its fiscal policy to promote economic growth and stability is its ability to:

• control the banking system.
• change federal income tax rates.
• manage the supply of currency.
• issue environmental regulations.

9. The main reason that the federal government would spend more than it collects in taxes during a depression would be to:

• promote corporate mergers.
• put more money into the economy.
• encourage competition between businesses in the same field.
• lower the tax costs for businesses.

10. A major function of the Federal Reserve System is to:

• pass laws to regulate the economy
• lend money to state governments
• manage the supply of currency and bank credit.
• issue United States savings bonds.