STUDY GUIDE|^463- The Treasury generally prefers __ inter-
est rates; the Federal Reserve board generally prefers
__.
a) higher; lower
b) higher; higher
c) lower; lower
d) lower; higher
e) stable; lower
S PRACTICE ONLINE
“Critical Thinking ” exercise: Politics Is Conflictual—
Social Security Reform and Party Platforms?ECONOMIC POLICY
E Explain the main purposes of government involvement in the economy and how fi scal, monetary, regulatory, and trade
policies infl uence the economy. Pages 434–48
SUMMARY
Policy makers’ pursuit of economic goals—such as full
employment, stable prices, or growth—is a complex pro-
cess. Policy makers have a variety of tools at their dis-
posal to help push the economy in their desired direction.
The government utilizes fi scal policy, monetary policy,
and regulation to infl uence the country’s economic per-
formance, but the pursuit of one goal often comes at the
expense of other economic goals.
KEY TERMS
full employment (p. 434)
economic depression (p. 434)
Council of Economic Advisers (p. 434)
infl ation (p. 434)
balanced budget (p. 436)
budget defi cits (p. 436)
Keynesian economics (p. 437)
supply-side economics (p. 439)
gross domestic product (p. 439)
business cycle (p. 439)
mandatory spending (p. 439)
discretionary spending (p. 439)
regressive (p. 440)
progressive (p. 440)
monetarist theory (p. 441)
reserve requirement (p. 442)
discount rate (p. 442)
federal funds rate (FFR) (p. 442)
open market operations (p. 442)
CRITICAL THINKING AND DISCUSSION
Do you support an active role for the government in regulat-
ing the economy, or would you prefer the free market to be
largely unregulated?PRACTICE QUIZ QUESTIONS- The Council of Economic Advisors was established
__.
a) by the Employment Act
b) by the Balanced Budget Amendment
c) in Article I of the Constitution
d) in Article III of the Constitution
e) by the Federal Reserve Board - When the government attempts to reduce infl ation, it
typically results in __.
a) businesses growing
b) higher interest rates
c) lower unemployment
d) an increase in GDP
e) lower interest rates - Keynesian economics argues that the eff ects of an
economic recession can be reduced by __.
a) decreasing government spending
b) increasing government spending
c) increasing income taxes
d) reducing the budget defi cit
e) discouraging consumer spending - Reducing the federal defi cit by cutting spending is dif-
fi cult because __.
a) the interest rates are too high
b) the majority of the budget is mandatory spending