Fiscal Policy, The Fed And Monetary Policy

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Fiscal Policy, The Fed And Monetary Policy

Questions and Answers
  • 1. 
    What term is used for a government plan to reduce aggregate demand and slow the economy?
    • A. 

      Contractionary fiscal policy

    • B. 

      Discretionary fiscal policy

    • C. 

      Expansionary fiscal policy

    • D. 

      Stabilizing fiscal policy

  • 2. 
    What are the two basic tools that the federal government uses to influence the economy?
    • A. 

      Entitlements and spending

    • B. 

      Entitlements and wages

    • C. 

      Taxation and spending

    • D. 

      Taxation and wages

  • 3. 
    Why is fiscal policy described as countercyclical?
    • A. 

      It often produces the opposite effect of what was intended.

    • B. 

      Rational expectations lead individuals to take countermeasures against the policy

    • C. 

      Its goal is to smooth out the peaks and troughs of the business cycle.

    • D. 

      It produces sharp ups and downs in economic performance.

  • 4. 
    If the government spends more than it takes in, what is that called?
    • A. 

      Balanced budget

    • B. 

      Budget deficit

    • C. 

      Budget surplus

    • D. 

      Discretionary budget

  • 5. 
    What is the government doing when it issues bonds?
    • A. 

      Investing in the stock market

    • B. 

      Paying the growing interest on the national debt

    • C. 

      Borrowing money it will have to repay in the future

    • D. 

      Encouraging foreigners to invest in this country

  • 6. 
    What is the opposite of discretionary fiscal policy?
    • A. 

      Automatic stabilizers

    • B. 

      Contractionary fiscal policy

    • C. 

      Expansionary fiscal policy

    • D. 

      Rational expectations

  • 7. 
    If the government wants to expand the economy, what action might it take?
    • A. 

      Begin construction of a new dam

    • B. 

      Maintain the level of funding for highway repairs

    • C. 

      Increase income tax rates

    • D. 

      Reduce federal aid to states

  • 8. 
    If the government wants to slow down the economy, what action might it take?
    • A. 

      Hire workers to create a new national park

    • B. 

      Offer states federal funds for text book purchases

    • C. 

      Double the excise tax on sales of gasoline

    • D. 

      Lower corporate income tax rates

  • 9. 
    Which would be considered an automatic stabilizer?
    • A. 

      Highway spending

    • B. 

      Income tax

    • C. 

      Military spending

    • D. 

      Sales tax

  • 10. 
    As part of its contractionary fiscal policy, the government decides to tax raw minerals.  Before the tax takes effect, manufacturers buy minerals.  The price of minerals goes up, adding to inflation.  What does this illustrate?
    • A. 

      Political issues

    • B. 

      Rational expectations theory

    • C. 

      Regional issues

    • D. 

      Timing issues

  • 11. 
    A central bank is
    • A. 

      A bank centrally located in a region

    • B. 

      A bank that has many branches

    • C. 

      A city's primary bank

    • D. 

      A nation's main monetary authority

  • 12. 
    The Fed provides banking services for
    • A. 

      The national government and many private banks

    • B. 

      The national government and only a few private banks the national government and only a few private banks

    • C. 

      Only the national government

    • D. 

      Only private banks

  • 13. 
    In general, demand for money increases when
    • A. 

      Daily spending decrease

    • B. 

      Income increases

    • C. 

      Interest rates increase

    • D. 

      Prices decrease

  • 14. 
    In general, the demand for money decreases when
    • A. 

      Daily spending increases

    • B. 

      Income increases

    • C. 

      Interest rates decrease

    • D. 

      Prices decrease

  • 15. 
    The money supply can be expanded by
    • A. 

      Changing the required reserve ratio from 5 % to 10%

    • B. 

      Changing the required reserve ratio from 10% to 5%

    • C. 

      Keeping the required reserve ratio stable at 5%

    • D. 

      Keeping the required reserve ratio stable at 10%

  • 16. 
    The Federal Reserve System of the US is actually made up of
    • A. 

      5 Federal Reserve District banks

    • B. 

      12 Federal Reserve District banks

    • C. 

      20 Federal Reserve District banks

    • D. 

      50 Federal Reserve District banks, one for each state

  • 17. 
    Currency is
    • A. 

      Checks and money orders

    • B. 

      Stocks and bonds

    • C. 

      Securities and loans

    • D. 

      Coins and paper money

  • 18. 
    Fiat money is money that is
    • A. 

      Backed by the confidence of the government

    • B. 

      Backed by reserves of silver and/or gold held by the government

    • C. 

      Money that exists only electronically in bank accounts

    • D. 

      Money in the form of checks and money orders

  • 19. 
    The Federal Reserve Banks hold reserves.  Reserves are
    • A. 

      Money banks use to cover their expenses

    • B. 

      Money banks have to pay to the government to get permission to do business in the US

    • C. 

      Money banks loan to customers

    • D. 

      Money banks need to hold and not loan out

  • 20. 
    The deposit expansion multiplier is used to determine
    • A. 

      How changing the automatic stabilizers will affect the money supply.

    • B. 

      How changing the required reserve ration will affect the money supply.

    • C. 

      How changing discretionary fiscal policy will affect the money supply.

    • D. 

      How much the money supply needs to be increased or decreasd.

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