Financing Government Quiz

The Federal Reserve purchases and sells government securities, adjusts the reserve requirement, and adjusts the discount rate to produce certain economic outcomes. What is one outcome the Federal Reserve might want to produce when purchasing government securities?

• increasing interest rates
• fostering economic expansion
• fostering economic contraction
• reducing the money supply

The Federal Income tax is considered a progressive tax. Which is the best definition of a progressive tax?

• tax that shifts income from wealthy people to poor people
• tax that results in higher payments from wealthy people than from poor people
• tax on incomes that must be paid by wealthy and poor alike
• tax that applies at a higher rate to people with higher incomes

Which of the following determines the fiscal policy of the federal government?

• amount of money put into or removed from circulation
• national output as measured by gross domestic product
• spending and taxing decisions of Congress and the president
• interest rates set by the Federal Reserve Board

Federal monetary policy is controlled by

• The Federal Reserve
• the Department of the Treasury.
• Congress and the president.
• a committee of independent bankers.

Predict what would happen if the Federal Reserve lowered the interest rate it charges the nation’s banks.

• The monetary supply would increase, stimulating the economy.
• The monetary supply would decrease, slowing the economy.
• Inflation would begin to taper off.
• The government would have to borrow more money.

What is one way the Federal Reserve System regulates economic activity?

• regulating tariff rates on foreign imports
• regulating production of consumer goods
• regulating the amount of money in circulation
• regulating spending by the federal government

Why might lawmakers increase taxes and decrease government spending?

• to reduce unemployment
• to increase consumer spending
• to decrease the level of demand
• to encourage corporate spending

Why is it difficult for the federal government to make large cuts in spending?

• most of the governments costs are for federal employees
• the largest part of government spending is fixed and cannot be easily reduced
• most people oppose cuts for programs like foreign aid and the State Department, which make up the most of government spending
• a Constitutional amendment has limited the size of any spending cuts that can be passed by Congress during any one fiscal year

What is the primary function of the Federal Reserve?

• To collect taxes and print money

• To insure deposits in banks and thrifts

• To conduct monetary policy and regulate banks

• To lend money to the government

What is the main goal of the Federal Reserve's monetary policy?

• Maximizing employment, stabilizing prices, and moderating long-term interest rates

• Ensuring the profitability of banks

• Balancing the federal budget

• Supporting the stock market