During a recession, which of the following is likely to occur?

an increase in the unemployment rate

and increase in the GDP growth rate

If the federal government is attempting to encourage spending by consumers and businesses, a fiscal policy BEST serving this purpose would be

decreasing government spending.

reducing the investment tax credit.

A budget deficit occurs when...

The government spends more money than it brings in for a fiscal year

The government brings in more revenue than it spends for a given year

When the Federal Reserve buys government securities/bonds on the open market, what effect does this action have on the nation's money supply and aggregate demand?

money supply increases; aggregate demand increases

money supply increases; aggregate demand decreases

money supply decreases; aggregate demand increases

money supply decreases; aggregate demand decreases

Monetary policies the Federal Reserve can adopt include all of the following EXCEPT

raising personal income tax rates.

lowering the reserve requirement.

Which of the following is primarily responsible for the control of the money supply?

the Federal Deposit Insurance Corporation

the Comptroller of the Currency

The four types of economic systems are:

Traditional, Command, Mixed, & Market

Traditional, Command, Combined, & Market

Communism, Capitalism, Free Market, and Macroeconomics

Microeconomics, Macroeconomics, Individual, and Traditional.

How does the Federal Reserve regulate the US monetary policy?

adjusting the short-term interest rates

adjusting the long-term interest rates

If the Federal Reserve raises interest rates to combat rapid inflation, what might be a negative outcome?

The government would put a freeze on prices

Open market sale is the

buying and selling of U.S. government bonds and treasury bills

The Federal Reserve wants to reduce the nation's money supply. This could be accomplished by doing all of the following EXCEPT

increasing the reserve requirement.

selling securities on the open market.

making banks hold a reserve for all types of deposits.

If policy makers are concerned about inflation, which fiscal and monetary policies would be MOST effective?

increasing taxes and selling bonds

lowering taxes and buying bonds

lowering taxes and raising the reserve requirement

increasing taxes and lowering the discount rate

The U.S. Department of Defense purchases a new fighter plane. Which statement best describes how the circular economic flow will be affected by this action?

Revenue for businesses will increase.

Wages for workers will increase.

Available labor for businesses will decrease.

Available products for households will decrease.

If the Federal Reserve System wanted to stimulate the U.S. economy and reduce unemployment, it would

A. cause interest rates to decrease because low interest rates encourage businessgrowth and expansion

B. cause interest rates to rise because high interest rates encourage business growthand expansion

C. increase the discount rate it charges banks, which would increase the money supply

D. increase consumer spending by reducing the money supply

If the Federal reserve and Government are attempting to encourage growth and stimulate the economy, which actions would each take? (monetary / fiscal)

decrease the interest rate / increase government spending

increase the Required reserve / increase government spending

sell government securities / decrease taxes

buy government securities / decrease government spending

Fiscal and Monetary Policy

Authored by Jon Inge

History

KG - University

Used 571+ times

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This quiz covers fiscal and monetary policy within macroeconomics, appropriate for high school students in grades 11-12 or an introductory college economics course. The questions assess students' understanding of how governments and central banks manage economic stability through different policy tools. Students need to grasp the fundamental distinction between fiscal policy (government use of taxes and spending) and monetary policy (Federal Reserve control of money supply and interest rates). Core concepts include the three tools of monetary policy - open market operations, discount rate, and reserve requirements - along with how expansionary policies (lower taxes, increased spending, lower interest rates) stimulate economic growth while contractionary policies combat inflation. Students must understand the relationship between money supply changes and their effects on interest rates, aggregate demand, unemployment, and inflation, as well as concepts like budget deficits, fractional reserve banking, and the circular flow of economic activity. Created by Jon Inge, a History teacher in AU who teaches grade K-University. This comprehensive quiz serves as an excellent assessment tool for measuring student mastery of macroeconomic policy concepts and can be effectively used for unit review, formative assessment, or exam preparation. Teachers can deploy this quiz as a homework assignment to reinforce classroom learning, use individual questions as warm-up activities to begin lessons on specific policy tools, or implement it as a comprehensive review before summative assessments. The variety of question formats - from basic definitions to application scenarios - allows instructors to gauge different levels of student understanding and identify areas needing additional instruction. This assessment aligns with economics standards including NCEE Standard 20 (fiscal and monetary policy) and supports learning objectives related to analyzing the role of government and central banks in economic stabilization.

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48 questions

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MULTIPLE CHOICE QUESTION

45 sec • 1 pt

An example of expansionary fiscal policy would be

cutting taxes.

cutting government spending.

cutting production of consumer goods.

cutting prices of consumer goods.

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

How could the Federal Reserve encourage banks to lend out more of their reserves?

reduce the discount rate

raise the required amount of reserve

increase the prime rate

reduce the money supply

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

Open market operations are

the processes by which money enters into circulation.

reserves greater than the required amounts

the buying and selling of government securities to alter the supply of money.

rates of interest banks charge on short-term loans to their best customers.

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

The rate the Fed charges banks for a loan

Discount rate

Federal fund rate

reserve ratio

prime rate

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

The use of taxes and government spending to affect the economy

Monetary Policy

Fiscal Policy

Contractionary Policy

Expansionary Policy

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

a plan to reduce aggregate demand and slow the economy

Contractionary Fiscal Policy

Expansionary Fiscal Policy

Contractionary Monetary Policy

Expansionary Monetary Policy

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

refers to government revenue, spending, and debt

Fractional Reserve Banking

Legal Reserves

Fiscal

Reserve system

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Fiscal and Monetary Policy

An example of expansionary fiscal policy would be

How could the Federal Reserve encourage banks to lend out more of their reserves?

Open market operations are

The rate the Fed charges banks for a loan

The use of taxes and government spending to affect the economy

a plan to reduce aggregate demand and slow the economy

refers to government revenue, spending, and debt

Congress cutting taxes is an example of ....

During a recession, which of the following is likely to occur?

If the federal government is attempting to encourage spending by consumers and businesses, a fiscal policy BEST serving this purpose would be

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