INFLATION QUIZ

What is the primary tool used by central banks to implement monetary policy?

• • A. Fiscal policy

• • B. Government spending

• • C. Interest rates

• D. Exchange rates

When the central bank sells government securities, what impact does it generally have on the money supply?

• • A. Increases money supply

• • B. Decreases money supply

• • C. No impact on money supply

• • D. Increases inflation

What happens when a central bank lowers the discount rate?

• A. It makes borrowing more expensive, discouraging spending
• B. It makes borrowing cheaper, encouraging spending
• C. It has no effect on borrowing costs
• D. It increases the money supply without affecting spending

What is the impact on the economy when the central bank increases the interest rate?

• A. It encourages more investments in the economy
• B. It discourages borrowing and slows economic growth
• C. It has no impact on the economy
• D. It decreases the money supply without affecting economic growth

What happens when the central bank decreases the reserve requirement?

• A. It discourages borrowing and slows economic growth
• B. It encourages more investments in the economy
• C. It has no impact on the economy
• D. It increases the money supply, potentially encouraging spending

What is the key difference between discretionary fiscal policy and automatic stabilizers?

• Timing of implementation

• Effect on aggregate demand

• Degree of government involvement

• Source of funding

During an economic boom, why might a government choose to implement a contractionary fiscal policy?

• To increase unemployment

• To control inflation

• To boost consumer spending

• To reduce government debt

What is the primary objective of fiscal policy?

• Stabilize employment

• Control inflation

• Promote economic growth

• All of the above

If the government wants to stimulate economic activity during a recession, which fiscal policy tool would it likely use?

• Increase taxes

• Decrease government spending

• Increase government spending

• Maintain the status quo

What is the potential drawback of using expansionary fiscal policy during a period of full employment?

• Higher inflation

• Budget surplus

• Decreased government debt

• Lower interest rates