Fiscal and Monetary Policies Refresher

Government’s use of its taxing and spending powers to influence the economy is called ...

• Fiscal policy

• Monetary Policy

• Supply Side Policy

• Moral suasion

Two distinct aspects of fiscal policy are discretionary policy and ...

• Tax policy

• Bank rate policy

• Automatic stabilizers

• Moral suasion

Fiscal policy is used to increase growth (and therefore improve unemployment) and to ...

• reduce interest rates

• increase interest rates

• reduce inflation

• persuade banks to lend more money

Calculating national income (i.e., GDP) using the expenditure method uses which calculation?

• AD = C - I - G - (X - M)

• AD = C + I + G + (X + M)

• AD = C + I - G - (X - M)

• AD = C + I + G + (X - M)

The government can do all of the following to increase aggregate demand and reduce a recessionary gap, EXCEPT:

• spend more money

• decrease welfare payments

• decrease taxes to leave consumers more money to spend

• decrease taxes on businesses to leave them more money to invest

Examples of automatic stabilizers are progressive income taxes and ...

• Changes to the reserve requirements

• Changes to the bank rate

• Unemployment benefits

• Moral suasion

Fiscal policy can help control rapid and escalating inflation, but can also cause crowding out, which is...

• increases in government spending but decreases in consumer spending

• the decrease in interest rates

• people crowding into banks and department stores

• an aspect of moral suasion

Demand for money is determined mainly by level of ...

• unemployment

• production in the economy

• interest rates

• moral suasion

Mechanisms through which Money Supply Policy is transmitted include:

• reserve requirements, changes to government spending

• reserve requirements, open market operations, bank rate policy

• level of taxation, government spending

• moral suasion

Inflation Targeting is best defined as:

• using fiscal policy to keep inflation rates near 3%

• using monetary policy to push bank rates to zero

• using fiscal policy to lower the inflation rate

• using monetary policy to maintain a particular rate of inflation