Fiscal and Monetary Policy: Government's Role in the Economy

Question 1

Which of the following is not a traditional tool of fiscal policy employed by governments?

Accepted Answer

Interest rate manipulation

Answer

Tax adjustments

Answer

Government spending

Answer

Budget planning

Question 2

What is the primary objective that monetary policy aims to achieve?

Accepted Answer

Maintaining price stability

Answer

Promoting full employment

Answer

Enhancing economic growth

Answer

Stabilizing financial markets

Question 3

Which type of fiscal policy involves increasing government spending or reducing taxes?

Accepted Answer

Expansionary

Answer

Contractionary

Answer

Neutral

Answer

Structural

Question 4

What is the typical relationship between inflation and interest rates?

Accepted Answer

High inflation usually leads to higher interest rates

Answer

High inflation usually leads to lower interest rates

Answer

Interest rate changes have no correlation to inflation rates

Answer

The relationship between inflation and interest rates is unpredictable

Question 5

How does expansionary monetary policy typically affect the money supply?

Accepted Answer

Increases the money supply by making it easier for banks to lend

Answer

Decreases the money supply by making it harder for banks to lend

Answer

Has no impact on the money supply

Answer

Reduces the value of the currency

Question 6

Which of the following is an example of a non-bank financial institution?

Accepted Answer

Investment firm

Answer

Commercial bank

Answer

Central bank

Answer

Credit union

Question 7

Which primary goal of fiscal policy aims to stimulate economic expansion?

Accepted Answer

Promoting economic growth

Answer

Controlling inflation

Answer

Reducing unemployment

Answer

Stabilizing the value of the currency

Question 8

What type of fiscal policy involves increasing government spending and reducing taxes?

Accepted Answer

Expansionary

Answer

Contractionary

Answer

Balanced budget

Answer

Keynesian

Question 9

Which monetary policy tool involves adjusting the amount of money in circulation?

Accepted Answer

Adjusting the money supply

Answer

Setting interest rates

Answer

Buying and selling government bonds

Answer

Imposing tariffs

Question 10

What is the primary objective of the Federal Reserve's monetary policy?

Accepted Answer

Controlling inflation

Answer

Promoting economic growth

Answer

Reducing unemployment

Answer

Balancing the budget

Question 11

Which monetary policy action is considered expansionary?

Accepted Answer

Decreasing the money supply

Answer

Increasing interest rates

Answer

Selling Treasury bonds

Answer

Raising bank reserve requirements

Question 12

How does fiscal policy influence overall spending in an economy?

Accepted Answer

By increasing income and spending

Answer

By decreasing prices and increasing profits

Answer

By reducing the cost of borrowing

Answer

By improving consumer confidence

Question 13

Which concept depicts the relationship between inflation and unemployment?

Accepted Answer

Phillips Curve

Answer

Laffer Curve

Answer

Aggregate Supply Curve

Answer

Interest Rate Parity

Question 14

How does contractionary monetary policy impact economic activity?

Accepted Answer

Slowing down economic growth

Answer

Increasing investment

Answer

Reducing unemployment

Answer

Stimulating exports

Question 15

Which limitation of monetary policy refers to its inability to address shocks originating from the supply side of the economy?

Accepted Answer

Cannot be used to address supply-side shocks

Answer

Only affects short-term interest rates

Answer

Takes a long time to implement

Answer

Ineffective when inflation is high

Question 16

What is the primary goal of monetary policy?

Accepted Answer

Maintain price stability

Answer

Promote economic growth

Answer

Reduce unemployment

Answer

Balance the government budget

Question 17

Which tool is NOT used in monetary policy?

Accepted Answer

Taxation

Answer

Reserve requirements

Answer

Open market operations

Answer

Interest rate control

Question 18

An expansionary fiscal policy typically involves:

Accepted Answer

Reducing taxes and increasing spending

Answer

Increasing taxes and reducing spending

Answer

Increasing both taxes and spending

Answer

Reducing both taxes and spending

Question 19

The purpose of an interest rate increase by the central bank is to:

Accepted Answer

Reduce inflation

Answer

Stimulate economic growth

Answer

Increase unemployment

Answer

Depreciate the exchange rate

Question 20

A bond with a higher yield typically has:

Accepted Answer

Higher risk and lower face value

Answer

Lower risk and higher face value

Answer

Higher risk and higher face value

Answer

Lower risk and lower face value

Question 21

Which of the following is NOT a form of monetary policy?

Accepted Answer

Fiscal policy

Answer

Expansionary

Answer

Contractionary

Answer

Quantitative easing

Question 22

The Phillips curve demonstrates an inverse relationship between:

Accepted Answer

Inflation and unemployment

Answer

Inflation and economic growth

Answer

Unemployment and economic growth

Answer

Inflation and interest rates

Question 23

The Federal Open Market Committee (FOMC) is responsible for:

Accepted Answer

Setting interest rates

Answer

Printing currency

Answer

Managing government debt

Answer

Implementing fiscal policy

Question 24

Which of the following is NOT a primary objective of fiscal policy?

Accepted Answer

Reduce the national debt

Answer

Control inflation

Answer

Manage unemployment

Answer

Promote economic growth

Question 25

What is the primary tool used by the Federal Reserve to implement monetary policy?

Accepted Answer

Interest rates

Answer

Taxes

Answer

Government spending

Answer

Fiscal policy

Question 26

Which of the following is an expansionary monetary policy measure?

Accepted Answer

Buying government bonds

Answer

Increasing interest rates

Answer

Reducing the money supply

Answer

Selling government bonds

Question 27

What is the term for a government's budget surplus?

Accepted Answer

Surplus

Answer

Deficit

Answer

Balance

Answer

Debt

Question 28

Which of the following is a benefit of using expansionary fiscal policy?

Accepted Answer

Reduces unemployment

Answer

Increases inflation

Answer

Slows economic growth

Answer

Balances the budget

Question 29

What is the term for the rate at which the price level is rising?

Accepted Answer

Inflation

Answer

Deflation

Answer

Interest rate

Answer

Unemployment rate

Question 30

Which of the following is a tool used to measure unemployment?

Accepted Answer

Unemployment rate

Answer

Consumer Price Index

Answer

Gross Domestic Product

Answer

Balance of payments

Question 31

What is the term for a government's budget deficit?

Accepted Answer

Deficit

Answer

Surplus

Answer

Balance

Answer

Debt

Question 32

Which of the following is NOT a tool of fiscal policy?

Accepted Answer

Interest rates

Answer

Government spending

Answer

Taxation

Answer

Infrastructure investment

Question 33

What is the primary goal of monetary policy?

Accepted Answer

To manage inflation

Answer

To reduce unemployment

Answer

To stimulate economic growth

Answer

To stabilize the financial system

Question 34

What is the effect of raising interest rates on economic activity?

Accepted Answer

Decreases investment and spending

Answer

Increases investment and spending

Answer

Has no effect on economic activity

Answer

Raises inflation

Question 35

Which of the following is NOT a benefit of fiscal policy?

Accepted Answer

Has no negative side effects

Answer

Can be used to target specific sectors of the economy

Answer

Can have a quick impact on economic activity

Answer

Can be used to address long-term economic issues

Question 36

What is the main difference between fiscal and monetary policy?

Accepted Answer

Fiscal policy is controlled by the government, while monetary policy is controlled by the central bank.

Answer

Monetary policy is more effective than fiscal policy.

Answer

Fiscal policy is only used to address short-term economic issues.

Answer

Monetary policy is only used to control inflation.

Question 37

Which of the following is a potential risk of expansionary monetary policy?

Accepted Answer

Inflation

Answer

Recession

Answer

Deflation

Answer

Unemployment

Question 38

What is the relationship between the Phillips Curve and inflation?

Accepted Answer

The Phillips Curve shows that there is a negative relationship between inflation and unemployment.

Answer

The Phillips Curve shows that there is a positive relationship between inflation and unemployment.

Answer

The Phillips Curve is not related to inflation.

Answer

The Phillips Curve only applies to long-term economic trends.

Question 39

Which of the following is NOT a tool of macroeconomic policy?

Accepted Answer

Administrative policy

Answer

Fiscal policy

Answer

Monetary policy

Answer

Trade policy

Question 40

During a recession, which type of fiscal policy would a government likely implement?

Accepted Answer

Expansionary fiscal policy

Answer

Neutral fiscal policy

Answer

Contractionary fiscal policy

Answer

Restrictive fiscal policy

Question 41

Which of the following is NOT a tool of monetary policy?

Accepted Answer

Taxation

Answer

Interest rates

Answer

Open market operations

Answer

Reserve requirements

Question 42

What is the primary responsibility of the Federal Reserve in implementing monetary policy?

Accepted Answer

Controlling the money supply and regulating banks

Answer

Setting fiscal policy and managing government spending

Answer

Advising the President on economic policy

Answer

Enforcing labor laws and regulating wages

Question 43

What is the main purpose of the Phillips Curve?

Accepted Answer

To illustrate the potential relationship between unemployment and inflation

Answer

To forecast future economic trends

Answer

To determine the optimal rate of inflation for economic growth

Answer

To guide the implementation of fiscal and monetary policy

Question 44

Which of the following is NOT a criticism of the Phillips Curve?

Accepted Answer

It can be an accurate predictor of long-term economic conditions

Answer

It assumes a fixed relationship between inflation and unemployment

Answer

It ignores the impact of other factors on inflation

Answer

It is not applicable to all economies

Question 45

What is the key difference between real GDP and nominal GDP?

Accepted Answer

Real GDP adjusts for inflation, while nominal GDP does not

Answer

Nominal GDP adjusts for inflation, while real GDP does not

Answer

Real GDP measures the total quantity of goods and services produced, while nominal GDP measures the total value

Answer

There is no difference between real GDP and nominal GDP

Question 46

Which limitation may arise when using fiscal policy to address economic imbalances?

Accepted Answer

Expansionary fiscal policy can trigger inflation.

Answer

Fiscal policy can promote long-term economic growth.

Answer

Fiscal policy is always more effective than monetary policy.

Answer

Fiscal policy can be implemented swiftly and effortlessly.

Question 47

Which of the following is a primary tool of fiscal policy used by governments?

Accepted Answer

Adjusting income tax rates

Answer

Changing interest rates

Answer

Setting reserve requirements

Answer

Negotiating exchange rates

Question 48

What is the fundamental objective of monetary policy?

Accepted Answer

To maintain price stability

Answer

To stimulate economic expansion

Answer

To minimize unemployment

Answer

To stabilize foreign exchange rates

Question 49

Which of the following measures would be considered an expansionary fiscal policy action?

Accepted Answer

Reducing taxes

Answer

Raising interest rates

Answer

Increasing government borrowing

Answer

Decreasing government spending

Question 50

How does an increase in the reserve requirement generally impact the money supply?

Accepted Answer

Decreases the money supply

Answer

Increases the money supply

Answer

Has no effect on the money supply

Answer

Raises interest rates

Question 51

Which of the following could be a potential negative consequence of overly expansionary monetary policy?

Accepted Answer

Inflation

Answer

Deflation

Answer

Economic recession

Answer

Increased economic growth

Question 52

How does a reduction in the federal funds rate typically affect economic activity?

Accepted Answer

Stimulates economic growth

Answer

Slows down economic growth

Answer

Has no impact on economic growth

Answer

Leads to higher inflation

Question 53

How is economic growth generally impacted by increased consumer confidence?

Accepted Answer

Positively, leading to increased economic growth

Answer

Negatively, leading to decreased economic growth

Answer

Not impacted, as consumer confidence has no effect on economic growth

Answer

Positively, leading to increased unemployment