President's Dilemma

Consumer spending is most likely to fall when:

• unemployment increases

• the population increases

• interest rates drop

• taxes are reduced

Over a 10 year period, the purchasing power of a typical family has risen faster than inflation. This implies that

• prices have risen faster than demand

• taxes have increased more than prices

• both prices and wages have increased

• wages have increased more than prices

The major purpose of calculating GDP is to:

• measure the level of economic activity

• prevent instability or changes in the CPI

• improve the standard of living

• measure transfer payments

The Federal Reserve System plays an important role in:

• setting fiscal policy

• setting monetary policy

• calculating federal debt

• deciding tax rates

Which of the following indicates a healthy economy?

• unemployment and inflation are high

• unemployment is high and inflation is low

• unemployment is low and inflation is high

• unemployment and inflation are low

Which of the following might increase business activity during a recession?

• increasing interest rates

• increasing the reserve requirement

• decreasing rates of taxation

• decreasing government spending for public goods and services

Supply side economists believe that:

• an increase in aggregate demand will lead to decreased in output and employment

• an increase in taxes will increase aggregate demand

• tax cuts and reduced government regulation will lead to increased output and employment

• large deficits and high interest rates are good for the economy

The Federal Reserve exercises monetary policy when it:

• influences the money supply

• supervises loan approvals by banks

• regulates currency distribution

• determines which banks can operate

Monetary policy affects economic activity by influencing:

• the size of the money supply

• the amount of income that goes into savings rather than consumption

• the size of the federal budget deficits

• tax rates

An increase in the average monthly income of a worker will:

• reduce government revenues

• increase business capital investment

• reduce the money supply in an economy

• increase consumption for normal goods