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Fiscal Policy & Monetary Policy Quiz

1. A business cycle refers to a. b. c. d. e. 2. fluctuations in the general price level. changes in the long-term growth pattern of the CPI. the ups and downs of real GDP. fluctuations in the level of corporate profits. seasonal unemployment patterns. 5. During periods of inflation, a. b. c. d. e. those people who have fixed incomes benefit. everyones real income falls. those people who hold a lot of cash benefit. those people who enter long-term wage agreements benefit. those people whose real income rises faster than the general price level benefit.

Gross domestic product constitutes a. the current market value of all final goods and services produced in a given year within a countrys borders. the total monetary transactions in an economy. the total spending in an economy. the total quantitative output in an economy. the current market value of all goods and services produced in a given year.

6.

Fiscal policy refers to a. the use of government spending and taxation to influence the level of economic growth and inflation. the adjustment of the GDP for inflation. the purchase and sale of U.S. government securities to regulate the money supply. a policy action by Congress to overrule unpopular budget cuts by the president. the use of fines to penalize unfair business practices.

b. c. d. e.

b. c.

3.

When considering any kind of economic indicator, prices are important because: a. b. They reflect the value of goods and services. They are established by the government to control populations needs. They categorize goods and services by their weight. Historically, they have proved to be good predictors of future unemployment. Historically, they have proved to be bad predictors of future unemployment.

d.

e.

7.

Fiscal policy in the United States is the result of a. b. c. d. e. a yearly budget process involving both the president and Congress. a five-year budget plan overseen by the Office of Management and Budget. a joint budget resolution by federal agencies. an act of Congress. a decree by the president.

c. d.

e.

4.

Which of the following persons would be considered unemployed? a. b. c. d. e. A house wife/husband A full-time student A person who worked more than 20 hours in a family-owned business A 15-year-old looking for summer employment A recent college graduate looking for her first job

8.

The government performs its redistribution function mainly through a. b. c. d. trade practice legislation against anticompetitive behavior the provision of public goods taxes and transfer payments tariffs on imports

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9.

Fiscal policy refers to the manipulation of government income and expenditure to a. b. c. control the volume and price of money limit the rate of increase in incomes affect the value of the dollar on world financial markets d. affect the level of total expenditure, output and employment

13.

Automatic stabilizers a. b. c. d. counter balance fluctuations in economic activity reinforce fluctuations in economic activity do not occur when the economy falls into recession reduce the size of the deflationary gap

10.

If the government wishes to reduce the level of economic activity in the economy, appropriate fiscal policy would be a. government bond sales by the Federal Reserve b. decrease spending and/or increase the level of taxation c. increase spending and/or decrease the level of taxation d. decrease spending and/or decrease the level of taxation

14.

A budget deficit can be financed by a. b. a decrease in interest rates reducing the level of government expenditure c. reducing the level of income tax d. borrowing from the Federal Reserve

15.

Sustainable economic development is an objective of government a. b. which will result in the maximum level of economic growth which will eliminate the negative externalities associated with economic growth is impossible to achieve in a modern industrial economy which is a compromise between economic growth and environmental protection

11.

A budget a. is a statement of the economys transactions in goods, services and capital with the rest of the world b. is a statement of government borrowing requirements c. is a statement of anticipated revenue, outlays and borrowing requirements by all governments in the North Atlantic block d. is a statement of anticipated revenue, outlays and borrowing requirements by the government in a year

c. d.

16.

The contractionary effect on private investment spending due to financing requirements of government deficit pushing up interest rates is known by this term a. b. c. d. crowding out recognition lag public sector borrowing requirement fiscal drag

12.

In Country A the tax system is as follows: MARGINAL TAX RATE (%) 0 21 38 46 47

TAXABLE INCOME 1 - 5400 5401 - 20700 20701 - 36000 36001 - 50000 50001 & OVER

17.

The central characteristic of money is that it a. b. c. d. is a store of wealth or value acts as a medium of exchange is a measure of value or unit of account is a standard of deferred payment

This income tax system is described as a. b. c. d. regressive progressive proportional flexible

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18.

The main role of the Federal Reserve is to a. b. c. d. administer the governments budget and fiscal policy provide advice to the government on the state of the economy oversee the operations of the financial system and monetary management establish the value of the dollar and official interest rates

23.

An asset that can easily be exchanged for goods and services is called a(n) a. b. c. d. e. service. financial asset. barter-like asset. illegitimate asset. liquid asset.

24.

The functions of money do not include a. b. c. d. e. an exchange of purchasing power. a unit of account. a medium of exchange. a store of value. a standard of deferred payment.

19.

The functions of the Federal Reserve include a. minting all official medals and medallions b. acting as the banker for the US government c. determining national economic policy direction d. providing finance to industry in the short-term

25.

Using money as a medium of exchange a. b. c. d. e. requires people to match goods wanted with goods available. reduces the need for a banking system. reduces the range of feasible exchanges in the economy. inhibits economic transactions. reduces the need for barter in the economy.

20.

Monetary policy is concerned with influencing a. b. c. d. the general level of money wages the level of government expenditure the price and availability of money the level of shares on the stock market

26.

When your grandmother keeps her savings hidden under her mattress, she is using money as a. b. c. d. e. a unit of account. a standard of deferred payment. a comfortable thing for sleeping. a medium of exchange. a store of value.

21.

The Fed uses three monetary policy tools to influence the availability and cost of money and credit, these include all the following EXCEPT: a. b. c. d. changing the tax rate changing the reserve requirement changing the discount rate open market operations

27.

Credit constitutes a. b. c. d. e. savings made available to borrowers. a form of liquid asset. fiduciary currency. bank loans converted into commodity money. money used as a standard of deferred payment.

22.

Money is a. b. c. d. e. a form of credit. an indicator of the scarcity of wants. anything that sellers accept in exchange for goods and services. a form of barter. anything that the government classifies as a trade commodity.

28.

If you use your Visa or MasterCard to buy a shirt, you are not buying the shirt with your money. a. b. T F

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29.

Chronic inflation undermines the store of value function of money. a. b. T F

33. The purpose of financial intermediaries is a. b. c. d. e. to allow more saving than investment. to discourage consumption spending. to control economic growth. to collect income taxes for the government. to serve as middlemen between savers and borrowers.

30.

Which of the following is not part of M1? a. b. c. d. e. Stock negotiating accounts Automatic transfer system accounts Negotiable orders of withdrawal accounts Currency Demand deposits at mutual savings banks

34. The main source of interest profits for banks is a. b. c. d. e. checking account fees. loans. reserves. government securities. savings accounts.

31. As a measure of money, M1 emphasizes the use of money as a. b. c. d. e. a store of value. an illiquid asset. a unit of account. a standard of deferred payment a medium of exchange.

35. A depository institutions profit is derived from the difference between a. the difference between its total reserves and its required reserves. b. the interest rate it pays on deposits and the rate it receives on loans. c. the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans. d. the difference between its assets and its liabilities. e. the interest rate it receives on loans and the rate it receives on investments in government securities.

32. Commercial banks a. b. c. d. e. are financial intermediaries that offer demand deposits. are owned by the Federal Reserve. are nonprofit banking institutions. are overseen by the Federal Savings and Loan Insurance Corporation. control U.S. monetary policy.

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