Domestic and Economic Policy

Question 1

Define:

domestic policy

Answer 1

Domestic policy refers to all the laws, programs, and administrative decisions within a given nation, such as health care or economic policy.

Question 2

What are the four major domestic policy types?

Answer 2

There are four major domestic policy types:

1. Economic
2. Social Welfare
3. Health Care
4. Environmental

Question 3

What are the three major policy types?

Answer 3

The three major policy types are:

• Distributive Policies: subsidies aimed at certain groups
• Regulatory Policies: agencies and departments craft rules to establish federal policy under their rule-making authority
• Redistributive Policies: the federal government takes from one group and gives to another

Question 4

Why are distributive policies popular with politicians?

Answer 4

Distributive policies usually come in the form of a subsidy to certain groups or companies, such as farmers or aircraft plants. Often, politicians are rewarded for the subsidy in the form of votes and political contributions.

Question 5

Which branch of the federal government is responsible for most regulatory policies?

Answer 5

Although Congress drafts most laws, regulatory policies stem from agencies and departments within the executive branch. The agencies and departments enact regulations pursuant to their rule-making authority.

As an example, the National Highway Traffic Safety Administration monitors Corporate Average Fuel Economy (CAFE) standards, enforcing regulations that are aimed at increasing fuel economy as part of the U.S. domestic policy aimed at reducing oil consumption.

Question 6

What are some examples of redistributive polices?

Answer 6

Redistributive policies provide funds raised from tax revenue to those who need financial assistance. Examples include housing assistance (Section 8), the Temporary Assistance to Needy Familes (TANF) program, and the Supplemental Nutrition Assistance Program (aka Food Stamps).

Question 7

What is the key factor in determining choices in economic policy?

Answer 7

Economic policy is determined by economic theory. For example, Keynesian economic theorists focus on different economic policies than supply-side economic theorists. The three main economic theories in U.S. policy are: (1) Keynesian economic theory, (2) monetarism, (3) supply-side economics.

Question 8

Generally, what are the two overarching concerns that govern economic policy?

Answer 8

The two overarching concerns are unemployment and inflation. Based upon their support among lower-income Americans and union workers, Democrats typically express more concern about employment, while Republicans focus on inflation.

Question 9

What is Keynesian economic theory?

Answer 9

In simple terms, Keynesian economic theorists focus on stimulating demand for products by having the government intervene with influxes of cash during a recession to stimulate purchases of goods and savings.

Question 10

What is monetarism and how does it relate to domestic policy?

Answer 10

Monetarism contends that excessive expansion of the money supply is inflationary (such as urged by the Keynesists), leading to higher prices. Monetarists argue that government should focus on maintaining stable prices.

Monetarism was proposed by Milton Friedman and was successfully used during the late 1970s and early 1980s.

Question 11

Restricting or expanding the monetary supply is a key component of monetarist domestic economic policy. How do monetarists typically do so?

Answer 11

Monetarists typically will use the Federal Reserve to raise or lower interest rates. At higher interest rates, companies and individuals borrow less, slowing the rate of inflation and restraining the marketplace. At lower interest rates, the opposite takes place.

Question 12

How do supply-side economic theorists view domestic economic policy?

Answer 12

Supply-side economic theorists contend that by making it easier to supply goods (for example, decreasing regulation and taxes), demand will be spurred and the economy will improve.

Question 13

Define:

Reaganomics

Answer 13

Reaganomics was the economic policy of President Reagan, who espoused supply- side economic theory with a dash of monetism. Reagan sought to reduce government spending, lowered marginal tax rates, reduced regulation, and reduced inflation by controlling the growth of the money supply.

Reagan’s program started an economic boom, but he failed to reduce government spending, leading to increased deficits.

Question 14

What is the role of the Council of Economic Advisers?

Answer 14

The Council of Economic Advisers guides the president in formulating and enacting domestic economic policies by the preparation of objective research. The council also prepares the president’s annual economic report.

The council is comprised of a number of economic experts who specialize in fields such as tax, macroeconomics, and manufacturing policy.

Question 15

What is monetary policy?

Answer 15

Monetary policy describes the actions taken by a central bank to influence the availability of money and credit to promote national economic goals.

The Federal Reserve Act of 1913 established the Federal Reserve and gave it the responsibility to set U.S. national monetary policy.

Question 16

How does the Federal Reserve Board enact economic policy?

Answer 16

The Federal Reserve Board regulates interest rates, keeps prices stable, and maximizes employment. The Federal Reserve is responsible for monetary policy and has three tools at its disposal: open market operations, the discount rate, and reserve requirements.

Question 17

What are “open market operations”?

Answer 17

Open market operations refer to the Federal Reserve’s sale or purchase of treasury bonds and other agency securities. These purchases control the short-term interest rate and the amount of base money in the economy, and thus indirectly establish control the total money supply.

Open market operations can spur the economy, or be used to restrain the rate of inflation. They are the most common tool used by the Federal Reserve to enact economic policy.

Question 18

As used by the Federal Reserve, what is the “discount rate”?

Answer 18

The discount rate refers to the interest rate charged to commercial banks when they borrow money from the Federal Reserve, usually overnight.

The discount rate acts as a check on interest rates that in turn impact the interest rates banks charge borrowers.

Question 19

How does the Federal Reserve use reserve requirements to enact economic policy?

Answer 19

Reserve requirements are the amount of cash a bank must keep on hand. By raising or lowering reserve requirements, the Federal Reserve can increase or decrease the amount of money a bank has available to lend, restricting or loosening the money supply.

The Federal Reserve rarely uses the reserve requirement tool.

Question 20

How did Congress ensure that the Federal Reserve would operate as a relatively independent entity?

Answer 20

The seven-member Federal Reserve Board of Governors, appointed by the president and comfirmed by the Senate, serves staggered 14-year terms, after which they are not eligible for reappointment. In addition, neither Congress nor the executive branch exercises any oversight or control over the Federal Reserve’s monetary policies.

Small checks on the Federal Reserve’s power exist because Congress can impeach a governor, and the president has the power to nominate individuals to vacant seats with the Senate’s approval.

Question 21

Define:

fiscal policy

Answer 21

Fiscal policy refers to using the government budget to influence economic activity.

Question 22

What is the role of the Federal Trade Commission (FTC) in the economy?

Answer 22

The FTC focuses on consumer protection and antitrust laws, including a review of potential mergers between large companies. Both of these roles can have significant effects on the larger economy. FTC compliance can lead to significant costs on companies and the economy.

Question 23

Define:

entitlements

Answer 23

Entitlements are programs available to all Americans regardless of means and are a form of social welfare. Entitlement programs include Social Security and Medicare.

Question 24

Define:

means test

Answer 24

By the use of a means test, the government determines whether an individual or family is eligible for government aid or whether they have enough means to do without government assistance.

Means testing is used in most social welfare programs, such as Temporary Assistance to Needy Families, the Section 8 housing program, and the Aid to Families with Dependent Children program.

Question 25

What is the poverty line?

Answer 25

The poverty line marks the total cost of all essential resources an average American human adult consumes in a year. The poverty line is often used as a component of the means test to determine eligibility for various federal programs.

Question 26

Define:

Medicare

Answer 26

Medicare is a national social insurance program that guarantees access to health insurance for Americans aged 65 and older and younger people with disabilities.

Medicare is an entitlement and was enacted as part of President Lyndon Johnson’s Great Society programs.

Question 27

Define:

Medicaid

Answer 27

Medicaid is a state-administered health program provided for families and individuals with low incomes and resources.

Medicaid is a means-tested program jointly funded by the state and federal government.

Question 28

What law marked the largest regulatory overhaul of the health insurance industry since 1965?

Answer 28

The Patient Protection and Affordable Care Act (also known as “Obamacare”) is the largest regulatory overhaul of the health insurance industry in more than half a century. The law forbids health insurers from charging more to people with pre-existing conditions (e.g. cancer), and requires all Americans to have health care or to pay a penalty.

The law also provides for state-level insurance exchanges and means-tested financial assistance based on the poverty line.

Question 29

What agency is chiefly responsible for advancing the federal government’s environmental policies?

Answer 29

The Environmental Protection Agency (EPA) advances the federal government’s environmental policy and does so primarily by its rule-making and rule-adjudication roles.

Question 30

Which act was passed in 1973 to protect imperiled animals threatened with extinction?

Answer 30

In 1973, Congress passed the Endangered Species Act at the urging of President Richard Nixon.

The act empowers the United States Fish and Wildlife Service and the National Oceanic and Atmospheric Administration to protect species from extinction.

Question 31

Which environmental legislation addressed air pollution at the national level?

Answer 31

The Clean Air Act, originally passed in 1967 and strengthened in 1970, 1977, and 1990, empowered the Environmental Protection Agency to regulate air pollution.

Question 32

How is domestic policy developed?

Answer 32

• Agenda Setting: the president and Congress establish an overarching legislative agenda
• Policy Formulation: the proposed agenda is subjected to a cost-benefit analysis
• Policy Adoption and Implementation: the proposed policy is submitted as a bill to Congress, debated and revised, and either passed or dies
• Congress selects an agency or department to implement a policy
• Policy Evaluation: based upon public and governmental reaction, the new agenda settings are evaluated

Question 33

What are grants-in-aid?

Answer 33

A grant-in-aid is an award of cash provided to a state to fulfill a specific policy program.

Grants-in-aid typically come with strings attached; a grant-in-aid may require the funds be spent on a certain project, or may be tied to the state enacting certain programs.

For example, federal highway funds are tied to a state’s agreement to limit the drinking age to those over age 21.

Question 34

What are block grants?

Answer 34

Block grants are grants provided to a state for a specific purpose, such as education or law enforcement. Block grants typically come with fewer strings attached than a grant-in-aid and focus on a specific purpose, rather than a specific policy.

Question 35

Define:

formula grant

Answer 35

A formula grant is a grant whose total value is derived using a formula included as part of the legislation enacting the grant.

For instance, the amount of the grant could be tied to a state’s population, and thus the grant amount would be higher for California than for Wyoming.

Question 36

What are project grants?

Answer 36

Project grants are federal grants for a very specific purpose and usually require state and local governments to provide matching funds.

As an example, the new Mississippi River Bridge between Missouri and Illinois at St. Louis utilizes a federal project grant and funds from both state governments to meet the $1.6 billion cost.

Question 37

A tax that imposes a greater burden (relative to resources) on the poor than on the rich is known as a _____ _____.

Answer 37

regressive tax

A sales tax is a regressive tax; while both high earners and low earners pay sales tax on a loaf of bread, the amount of the sales tax compared to total income level is less for the high earner than for the low earner.

Question 38

A _____ _____ shifts the taxation burden to those with higher incomes, requiring them to pay a greater percentage of their income in taxes than those with lower incomes.

Answer 38

progressive tax

In 2010, the top 1% of income earners paid 37% of all taxes, while the bottom 50% paid 2.36% of all taxes.

Question 39

What do proponents of a “flat tax” argue?

Answer 39

Proponents of a flat tax contend that the current progressive tax code is unfair, and that each person and corporation should pay the same percentage of their income in taxes.

For instance, under a 10% flat tax proposal, a person making $50,000 would pay $5,000 in taxes, and a person making $500,000 would pay $50,000 in taxes.

Question 40

From what source do most local (city/county) governments derive their revenue?

Answer 40

Most local sources derive their revenue from property taxes, which are typically a percentage of the total value of the property.

Property taxes can come in two forms: real estate property taxes, which are derived from the value of land and buildings; and personal property taxes, which can be levied on items such as automobiles, inventory, and equipment.

Question 41

Who is responsible for collecting sales taxes?

Answer 41

Sales taxes are typically collected by a seller at the time of purchase and are measured as a percentage of the total value of the item; for instance, to pay for a $1.00 loaf of bread in a state with a 7% sales tax, a consumer would pay $1.07.

Most states, and some local governments, have a sales tax.

Question 42

When do estate taxes take place?

Answer 42

Estate taxes take place when a person dies, and are a tax that must be paid by the deceased’s beneficiaries out of the proceeds of the deceased’s estate.

At the federal level, Congress has currently suspended the estate tax on all estates worth less than $5 million.

Question 43

Define:

excise tax

Answer 43

An excise tax is the tax on the manufacture of an item (rather than on its sale).

As an example, distillers of liquor pay excise taxes for each bottle produced.

Question 44

What was the primary focus of domestic policy in the Gilded Age, roughly between 1870-1890?

Answer 44

Most domestic policy focused on transportation (such as the Transcontinental Railroad) and reforms advocated by unions (such as child labor reforms, the 10-hour workday, and worker safety issues).

Question 45

During the Progressive Era (1890-1920), domestic policy was primarily concerned with what issue?

Answer 45

Throughout the Progressive Era, domestic policy was concerned primarily with the effects of big business, such as the formation of large companies through mergers, trusts, and other attempts to monopolize. The “trust busting” efforts of Presidents Roosevelt and Taft reflect this increased attention.

During the period, the Sixteenth Amendment (allowing income tax) was ratified, and the Federal Reserve was established to stabilize the nation’s finances.

Question 46

What period marked the greatest expansion of the federal government into setting domestic policy?

Answer 46

The largest increase in federal government involvement came during the Great Depression. President Franklin Roosevelt’s New Deal programs established a plethora of federal agencies responsible for policies related to a wide variety of functions, from the stock market (the Securities and Exchange Commission) to housing (the Federal Housing Administration) to retirement (Social Security).

Question 47

What was the primary domestic policy focus of President Johnson’s (1963-1968) Great Society programs?

Answer 47

Johnson’s Great Society programs were part of his “War on Poverty” and aimed to alleviate poverty by establishing housing programs, education programs, and Medicaid.

Question 48

Which two laws govern most of the federal budgetary process?

Answer 48

The two laws that govern most of the federal budgetary process are the Budget and Accounting Act of 1921 and the Congressional Budget and Impoundment Control Act of 1974. These two acts provide most of the deadlines and procedures Congress and the president are to follow in establishing the federal government.

Question 49

What is the first step in Congress’ annual budget creation process?

Answer 49

As established in the Budget and Accounting Act of 1921, the first step takes place when the president submits the annual proposed budget, which by law he must do on the first Monday in February.

In recent years, there has been an increased trend to miss the deadline; no president from Harding to Carter missed it, but Presidents Reagan and Clinton missed it once each. President Obama has missed the deadline three times.

Question 50

After the president submits his budget to Congress on the first Monday in February, what steps does Congress take on the budget?

Answer 50

During February and March, the House and Senate budget committees begin to review the president’s budget, receiving input from various congressional committees, the executive branch departments and agencies, and the Congressional Budget Office. By April 1, the budget committees each submit budget resolutions to their respective bodies, which specify funding levels for appropriations committees and subcommittees.

Question 51

After budget resolutions are submitted on April 1 by the budget committees of the House and Senate, when are their respective bodies expected to vote on the resolutions?

Answer 51

Votes are expected by about April 15, and the resolutions can be amended. The resolutions are not laws and thus do not require the president’s signature; instead, they provide a blueprint for the appropriation process.

For fiscal years 2010, 2011, and 2012, the Senate failed to pass a budget resolution or bring a budget plan to the Senate floor.

Question 52

What is the next step after both houses of Congress pass their respective resolutions on the federal budget?

Answer 52

After both houses pass their respective budget resolutions, selected representatives and senators meet to resolve differences between the two resolutions, creating a conference report. The House and Senate then vote on the conference report, which both houses must approve for the federal budget to become binding.

Question 53

Once both houses of Congress have approved the conference report on the federal budget, what happens next?

Answer 53

After the conference report is approved, the House and Senate appropriations committees separately prepare specific expenditures of money. Both committees are organized into 13 subcommittees, which consider specific appropriations and draft 13 appropriation bills.

By October 1 (the start of the fiscal year), the appropriations bills are to be completed, voted on by Congress, and signed by the president.

Question 54

If Congress does not pass a budget and/or appropriations bill, what other option is available to the legislative branch to ensure the government continues to function?

Answer 54

In the absence of a formal appropriations bill, Congress can pass a continuing resolution, which provides continued funding for federal programs at either current or reduced levels from the previous fiscal year.

Contrary to the Congressional Budget Act of 1974, which mandates a budget, Congress has failed to pass a budget since 2009.

Question 55

What is the difference between mandatory (non-discretionary) and discretionary spending?

Answer 55

Mandatory spending is spending to which Congress has already committed, e.g. interest on the national debt or social security payments. Discretionary spending refers to spending set on a yearly basis as established yearly by Congress.

Question 56

What is Superfund?

Answer 56

Superfund is a fund available to the Environmental Protection Agency (EPA) that exists to clean up areas of intense environmental damage.

Under the Superfund enabling legislation, the EPA also has the power to file suit against polluters.

Examples of Superfund sites include the Love Canal, an area outside of Buffalo that was contaminated by toxic waste.

Question 57

What government program is often called the “third rail” of American politics?

Answer 57

The third rail refers to Social Security.

On electrified transit systems, the third rail is often electrified, meaning it will kill or seriously injure anyone touching it.

Suggesting even minor modifications to Social Security has been considered equally deadly to a politician’s career. Given the program’s current unsustainable trajectory, however, some modifications may be required in the future.

Question 58

What did the Gramm-Rudman Act attempt to establish?

Answer 58

The Gramm-Rudman Act attempted to limit the amount of debt the federal government could issue until the entire deficit was eliminated.

After the Court struck down parts of the Act as unconstitutional, Congress supplanted the Act in 1990, doing away with the Act’s deficit targets.

Question 59

What would a balanced budget amendment provide?

Answer 59

A balanced budget amendment to the Constitution would require the federal government to balance its budget each year, without reliance on debt.

To date, a balanced budget amendment has not yet made it out of Congress.

Question 60

The _____ _____ _____ _____ guaranteed workers’ rights to join unions, and established the right of employers to negotiate collectively.

Answer 60

National Labor Relations Act

Passed in 1935, the National Labor Relations Act is also known as the Wagner Act.

The Act also established the National Labor Relations Board (NLRB). The NLRB is responsible for protecting workers’ rights to engage in union activity.

Question 61

One of the last pieces of New Deal legislation was the Fair Labor Standards Act (1938). What did the Fair Labor Standards Act establish?

Answer 61

The Fair Labor Standards Act limited child labor for those under the age of 16. In addition, it established a minimum wage and the 40-hour work week.

Question 62

Congress passed the Taft-Hartley Act in 1947. What did the Taft-Hartley Act establish?

Answer 62

The Taft-Hartley Act outlawed the closed shop, which required workers to be union members before being hired. In addition, states were permitted to pass right-to-work laws, secondary boycotts (sympathetic boycotts in related industries) were outlawed, and the president was empowered to order an 80-day cooling off period if a strike took place in an industry vital to national security.

The Taft-Hartley Act differed from the Wagner Act (passed as part of the New Deal), and favored employers over workers.