Deck 10: Housing Bubble, Financial Crisis, and Government Spending, Taxes, and Deficits

Question 1

A stock market bubble occurs when

A) prices of stock fluctuate or "bubble" up and down.
B) prices of shares of stock increase steadily over a long period of time.
C) prices of stock decrease suddenly due to an external shock to the economy.
D) prices of stock rise above a level supported by underlying economic fundamentals.

Answer 1

D

Question 2

The "New Deal" refers to economic policies instituted by

A) President Theodore Roosevelt
B) President Franklin Roosevelt
C) President Eisenhower
D) President Kennedy

Answer 2

B

Question 3

The Great Depression

A) was the result of the first oil embargo of the 1970s.
B) was a particularly severe recession that occurred in the United States during the 1950s.
C) was a worldwide economic downturn that started in 1929.
D) was a consequence of World War I.

Answer 3

C

Question 4

A "regressive" tax is

A) one that will expire after 10 years.
B) one in which the percentage falls as the level of income rises.
C) one in which the amount falls as the level of consumption rises.
D) one in which the percentage remains the same, but the amount rises with income.

Question 5

A government budget deficit occurs when

A) the government buys government bonds from private investors.
B) the government collects more in taxes and fees than it spends in a year.
C) the government spends more than it collects in taxes and fees in a year.
D) the government pays out more in interest on the external debt than on the internal debt.

Question 6

Aggregate demand is defined as

A) the total dollar amount of goods and services that consumers, investors, foreigners, and governments plan to buy at a given price level.
B) the total dollar amount of goods and services that business produces and plans to sell at a given price level.
C) the demand for a materials used in concrete.
D) the demand for all the various types of goods and services consumed by a household.

Question 7

Government spending that is the result of previously enacted policies and laws such as Social Security and unemployment compensation is called

A) discretionary fiscal policy.
B) automatic fiscal policy.
C) continuous fiscal policy.
D) imbedded fiscal policy.

Question 8

If federal government revenues (primarily taxes) are greater than total government outlays, then the federal government budget

A) has a surplus.
B) has a deficit.
C) is balanced.
D) has a capital gain.

Question 9

Assume that the federal government collected $2,407 billion in revenues in 2006, and total outlays were $2,655 billion.

A) There was a surplus of $248 billion in 2006
B) There was a deficit of $248 billion in 2006
C) The government debt in 2006 was $248 billion
D) Government transfers in 2006 were $248 billion

Question 10

During expansionary periods in peacetime, we can expect

A) revenues to increase.
B) government spending to fall.
C) revenues to fall.
D) deficits to rise.

Question 11

During expansionary period in peacetime, we can expect

A) revenues to fall.
B) government spending to rise.
C) deficits to rise.
D) government spending to fall.

Question 12

When was the federal law providing benefits for the unemployed passed?

A) In the 1960s.
B) In the 1930s.
C) In the 1980s.
D) There is no federal law providing unemployment compensation.

Question 13

Every year the President and Congress decide on spending for various programs. This type of spending is called

A) deficit spending.
B) discretionary spending.
C) automatic spending.
D) transfer payments.

Question 14

Andrew purchased 1,000 shares of stock for $25,000 in 1987. In 1997 he sold these 1,000 shares for $72,000. Andrew has experienced

A) a capital gain.
B) a capital loss.
C) an increase in earned income.
D) a gain or a loss depending on the rate of inflation.