AP Macroeconomics Unit 5

If Congress increases government spending by the same amount it increases taxes aggregate demand will

• remain the same
• decrease, these are both contractionary
• increase
• shift down

Money loses its value when it

• It becomes too plentiful
• becomes too portabale
• is divisible
• is durable

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

• Unemployment rates would rise
• taxes will rise 
• The government would put a freeze on prices
• international trade would stop 

Which of the following is a monetary policy action used to combat a recession?

• cutting taxes
• increasing the money supply
• decreasing the money supply
• raising taxes

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

• decreasing the discount rate.
• increasing the reserve requirement.
• selling securities on the open market.
• making banks hold a reserve for all types of deposits.

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)

• increase the Required reserve / increase government spending
• sell government securities / decrease taxes
• decrease the interest rate / increase government spending
• buy government securities / decrease government spending

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

• decreasing taxes.
• decreasing government spending.
• reducing the investment tax credit.
• balancing the budget.

The rate the Fed charges banks for a loan

• Discount rate
• Federal fund rate
• reserve ratio
• prime rate

Which of the following statements is true?

• Contractionary monetary policy would increase government revenue & slow down the economy.

• Contractionary fiscal policy would decrease the reserve requirement & slow down the economy.

• Contractionary fiscal policy would lead to a decrease in national debt.

• Contractionary monetary policy leads to a budget deficit.