Monetary and Fiscal Policy Review

The Central bank of the United States is called

• The Federal Reserve

• Bank of the United States

• US Bank

• Bank of America

Answer explanation

The Central bank of the United States is called The Federal Reserve, making it the correct choice among the options provided.

This type of tax increases as income increases.

• Progressive Tax

• Regressive Tax

• Proportional Tax

If the Federal Reserve raises reserve requirements

• Money Supply Increases

• Money supply decreases

Answer explanation

If the Federal Reserve raises reserve requirements, banks are required to hold more money in reserves, reducing the amount available for lending, leading to a decrease in the money supply.

Which of the following is NOT a tool of the Federal Reserve

• Setting Discount Rates

• Increasing or Decreasing Taxes

• Changing the Reserve Requirements in Banks

• Buying and selling securities using open market operations

Answer explanation

Increasing or Decreasing Taxes is NOT a tool of the Federal Reserve.

The President and Congress have the role of passing _____ policy.

• Fiscal

• Monetary

Answer explanation

The correct answer is fiscal policy because the President and Congress are responsible for passing laws related to government spending and taxation, which fall under fiscal policy.

When the President/Congress decrease taxes, this would

• Increase consumers spending and real GDP

• Decrease consumer spending and real GDP

• Have no effect on consumer spending or real GDP

Answer explanation

When the President/Congress decrease taxes, it would increase consumers spending and real GDP, as individuals have more disposable income to spend, leading to economic growth.

The goal of contractionary fiscal or monetary policy is

• To decrease unemployment and increase economic growth

• To increase inflation

• To decrease inflation

• To increase unemployment and decrease economic growth

Answer explanation

The goal of contractionary fiscal or monetary policy is to decrease inflation.

The two tools of Fiscal policy are (Select Two)

• Open Market operations

• Taxes

• Government Spending

• Discount Rates

Answer explanation

The two tools of Fiscal policy are Taxes and Government Spending. These tools are used by governments to influence the economy through revenue collection and expenditure.

To increase the money supply, the Federal Reserve would

• Decrease interest rates to boost consumer/business spending

• Increase Reserve Requirements on banks

• Print more and more money

• Buy government securities and bonds on the open market

Answer explanation

To increase the money supply, the Federal Reserve would decrease discount rates to boost consumer/business spending.

If unemployment is increasing and real GDP has slowed down, the President and Congress should

• Use Expansionary Fiscal Policy by increasing spending

• Use contractionary fiscal policy by decreasing spending

Answer explanation

If unemployment is increasing and real GDP has slowed down, the President and Congress should use Expansionary Fiscal Policy by increasing spending to stimulate the economy.