Monetary & Fiscal Policy Test

Which of the following best completes the graphic?

• Federal Reserve System

• Stock Exchange

• Treasury Department

• Washington, D.C.

Which of the following accurately completes the graphic above?

• Types of Money

• Federal Reserve Notes

• Functions of Money

• Characteristics of money

What is one way the U.S. economy can be adversely affected when interest rates are lowered?

• Prices may inflate

• Tax rates may decrease

• Less capital may be available

• Unemployment may increase

Commodity money can best be described as-

• trade goods or services between two people without the exchange of money

• currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves

• a form of money which has an intrinsic value, meaning it is worth something in its own right rather than simply being a token of financial value

• money that consists of a token or certificate that can be exchanged for a specific good, such as gold, silver, or potentially water, oil, or food

One way the Federal Reserve can counter unemployment and stimulate spending is by-

• selling securities

• tightening monetary policy

• decreasing the discount rate

• increasing the reserve requirement

In order to require banks to hold more money as opposed to lending it, the Federal Reserve can-

• decrease the federal funds rate

• increase the reserve requirement

• suspend the federal funds rate target

• decrease the reserve requirement

During an economic recession the Federal Reserve Banks will most likely react by-

• easing monetary policy making it easier to lend money

• raising the discount rate to affect the monetary supply

• tightening monetary policy making lending more difficult

• reducing open market transactions to reduce the money supply

Which scenario is most likely to result when the Federal Reserve raises the reserve requirement?

• More money is required to be kept in banks to loan out to businesses, so they can invest in their companies.

• More money is required to be kept in the Federal Reserve banks, which increases the amount of money in circulation and stimulates the economy

• More money is required to be kept in the Federal Reserve banks to make it available for loans to member banks in poor economic times.

• More money is required to be kept in bank reserves, and less is available to be loaned out to businesses to invest in the economy

Why did abandoning the gold standard result in a decline in the value of the U.S. dollar?

• People began hording dollar bills so the value would decline.

• More currency was able to be printed thus reducing its value

• Americans did not want to use fiat currency so the value declined

• Businesses preferred to be paid with gold thus dollars were less valued.

During an expansionary phase of the business cycle the government could implement a contractionary fiscal policy in order to —

• create jobs

• promote spending

• encourage investment

• address any inflation issues