Abigail is studying different monetary policies in her economics class. She learns that one of the policies aims to stimulate economic growth by making borrowing cheaper. Which of the following is an example of this expansionary monetary policy? Increasing reserve requirements, Selling government securities (bonds), Decreasing the federal funds rate, Raising taxes

Decreasing the federal funds rate

What mechanism does the Federal Reserve use to influence the Federal Funds rate?

The Federal Reserve adjusts the interest rates that act as price floors & price ceilings to guide the FFR

How does the Federal Reserve Bank assist the U.S. Treasury?

By managing the Treasury's bank accounts

What is one of the main reasons the Federal Reserve adjusts interest rates?

To control inflation and stabilize the economy

During a financial crisis, Samuel's bank is struggling to stay afloat. What does it mean for the Federal Reserve to act as a “lender of last resort” in this situation?

It will lend money to a bank in a financial emergency.

Isla, a member of the Board of Governors, disagrees with her colleagues on the state of the economy and only supports lowering the discount rate several months after a recession has begun. Which of these is an example of inside lag in monetary policy? Options: Corporations respond slowly to increases in interest rates by reducing their planned investment for future years., Individual banks ignore a reduction in the prime rate and don’t change the interest rates on their car loans., Members of the Board of Governors disagree on the state of the economy and only lowers the discount rate several months after a recession has begun., The federal government debates a new public works program and ultimately chooses not to spend money on new highways and railroads.

Members of the Board of Governors disagree on the state of the economy and only lowers the discount rate several months after a recession has begun.

Which of the following is NOT a challenge faced by the Federal Government in executing effective fiscal policy? Time lags in the implementation of policy measures. Influence of political agendas on economic decisions. Uncertainty in economic forecasting. Mandatory compliance of federal fiscal policies by all states.

Mandatory compliance of federal fiscal policies by all states.

How does a government budget deficit typically affect national debt?

A budget deficit increases the national debt over time.

What could lead to a rise in the national debt? Options: Reduction in healthcare costs, Increase in interest rates on existing debt, Surplus in the federal budget, Decrease in social security benefits

Increase in interest rates on existing debt

What approach does the federal government take to manage mandatory spending programs like Medicare during budget deficits?

By borrowing funds to maintain program levels

How does discretionary spending differ from mandatory spending in terms of budget adjustments?

Discretionary spending is subject to annual budget changes, while mandatory spending is not.

What is the federal debt?

The total amount of money the government owes to creditors at a specific point in time.

In classical economic theory, which factor is considered most crucial for ensuring long-term economic prosperity? Options: Fiscal policy adjustments, Market forces of supply and demand, Increased government spending, Advancements in technology

Market forces of supply and demand

According to Keynesian economic theory, what fiscal policy is recommended for a government to adopt during an economic downturn? Options: Reducing public sector wages, Increasing government expenditure, Raising taxes, Lowering the money supply

Increasing government expenditure

In classical economic theory, how is long-term economic growth best achieved? Options: Through increased government regulation of industries, By allowing free market competition to drive innovation and efficiency, By implementing protective tariffs to support local businesses, Through government subsidies for emerging industries

By allowing free market competition to drive innovation and efficiency

During a class discussion, Anika mentioned a theory that suggests the government can play a role in boosting the economy during a downturn. Which of these statements aligns with her understanding of demand-side economics? The government can spend money to increase aggregate demand and pull the economy out of recession.

The government can spend money to increase aggregate demand and pull the economy out of recession.

How does a rise in interest rates typically affect borrowing and saving behaviors?

Discourages borrowing and encourages saving.

What is a key factor for the stability of a fiat currency system?

There must be trust in the issuing authority and the currency.

Avery is learning about the functions of money in her economics class. Which of the following statements is false? Money is a measure of value, Money is a factor of production, Money is a medium of exchange, Money serves as a store of value

Money is a factor of production

What type of tax is applied to properties owned by Emily and David, who are subject to a 15% property tax annually, with Emily earning $50,000 and David earning $120,000?

Regressive, the tax takes a larger percentage of Emily's income.

What is a key characteristic of a proportional tax system?

It imposes the same tax rate on all individuals regardless of income.

What does the term “Interest on Excess Reserves” refer to?

It is the interest paid by the Fed to banks for holding reserves above the required minimum.

Unit 6 Review: Monetary & Fiscal Policy Flashcards

Student preview

44 questions

Show all answers

1.

FLASHCARD QUESTION

Front

What is the primary purpose of the Federal Reserve?

Back

Controlling inflation

2.

FLASHCARD QUESTION

Front

Which of the following is not a responsibility of the Federal Reserve? Setting interest rates, Supervising financial institutions, Collecting federal taxes, Maintaining financial stability

Back

Collecting federal taxes

3.

FLASHCARD QUESTION

Front

What are the two primary objectives of the Federal Reserve's dual mandate?

Back

Ensuring maximum employment and price stability

4.

FLASHCARD QUESTION

Front

How does the Federal Reserve aim to achieve its dual mandate?

Back

By adjusting the money supply

5.

FLASHCARD QUESTION

Front

What is the likely impact on the money supply if the Federal Reserve decides to increase both the Reserve Requirement and the Discount Rate?

Back

Decrease

6.

FLASHCARD QUESTION

Front

What is one method the Federal Reserve uses to control inflation? Options: Increasing the money supply, Lowering taxes, Adjusting the federal funds rate, Subsidizing exports

Back

Adjusting the federal funds rate

7.

FLASHCARD QUESTION

Front

What is the federal funds rate?

Back

The interest rate banks charge each other for loans.

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