U.S. Government Practice Test: Economic Policy and the Federal Budget
- Economic Policy and the Federal Budget
- 10 questions
- 12 minutes
These 10 questions cover how the federal government taxes, spends and manages the economy. Keep two pairs apart: fiscal policy versus monetary policy, and the deficit versus the debt.
Tap an option to mark your answer. You can change your mind, or tap the same option again to leave the question blank. The correct answers and explanations appear when you finish the test.Tap an option to answer; tap it again to leave the question blank.
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Question 1
A government's use of taxing and spending to influence the economy is called
Correct answer: B
Fiscal policy is set by Congress and the President through the budget and tax laws. Monetary policy, controlled by the Federal Reserve, works through interest rates and the money supply.
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Question 2
If inflation is rising quickly, what is the Federal Reserve most likely to do?
Correct answer: C
Higher interest rates make loans more expensive, which slows spending and price increases. Cutting taxes is fiscal policy, which the Fed does not control.
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Question 3
On what date does the federal government's fiscal year begin?
Correct answer: A
The federal fiscal year runs from October 1 to September 30. April 15 is the usual deadline for filing individual income tax returns, not the start of the budget year.
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Question 4
Which of these is an example of mandatory spending, which is required by existing law rather than set in yearly appropriations?
Correct answer: D
Social Security payments go to everyone who qualifies under the law, without a new vote each year. Defense, NASA and parks are discretionary spending, decided in annual appropriations bills.
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Question 5
What is the difference between the federal budget deficit and the national debt?
Correct answer: B
Each year in which spending is greater than revenue adds a deficit, and the government borrows to cover it. The debt is the sum of that borrowing that has not been repaid.
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Question 6
The federal income tax is called a progressive tax because
Correct answer: D
Income is taxed in brackets, and higher brackets have higher rates. A sales tax, in contrast, is often called regressive because it takes a larger share of a poorer person's income.
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Question 7
Each year, who submits a proposed federal budget to Congress?
Correct answer: C
Since the Budget and Accounting Act of 1921, the President sends Congress a budget proposal, prepared with the Office of Management and Budget. Congress then writes and passes the actual spending bills.
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Question 8
What is the Congressional Budget Office (CBO)?
Correct answer: A
The CBO gives Congress cost estimates and economic forecasts. Paper money is printed by the Bureau of Engraving and Printing, part of the Treasury Department.
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Question 9
If Congress and the President do not pass appropriations or a temporary funding bill by the start of the fiscal year, what usually happens?
Correct answer: B
Without approved funding, many agencies must stop non-essential work and furlough employees. A continuing resolution, a temporary funding bill, is the usual way to avoid this.
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Question 10
What is the debt ceiling?
Correct answer: A
Congress sets a dollar limit on federal borrowing and must raise or suspend it so the Treasury can pay bills already approved. The Constitution itself sets no deficit limit.
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