Fiscal & Monetary Policy

Who is responsible for making fiscal policy decision?

• The President and Congress

• The Federal Reserve System

• The National Council of Economic Advisors

• The Department of Commerce

The federal government's overall approach to spending and taxes is called

• Physical Policy

• Fiscal Policy

• The Federal Reserve

• Monetary Policy

Monetary policy decisions are made by:

• Congress

• Senate

• The Fed

• President

Which of the following would be an appropriate contractionary fiscal policy measure for the Congress could take to combat inflation?

• Increase government spending

• increase taxes

• decrease taxes

• increase reserve requirements

Use this image to answer the following question.

When the economy is operating at point C, the U.S. Congress is most likely to follow __________ by __________.

• expansionary fiscal policy; increasing government spending

• contractionary fiscal policy; increasing taxes

• expansionary monetary policy; increasing reserve requirements

• contractionary monetary policy; selling bonds

A reserve requirement of 20 percent (%) means that which of the following is true?

• Federal funds rate is 20 percent, which is a very high interest rate

• Only 20 percent of a bank’s deposits can be lent out, and they have to keep the rest in the bank as reserves.

• Only twenty percent of a bank’s deposits must be kept on reserve, and the rest can be lent out or invested.

• Banks charge each other 20 percent interest on funds they loan overnight

If the Federal Reserve adopts an expansionary monetary policy, what is the desired result?

• Interest rates rise and credit is tight.

• Interest rates rise and credit is abundant.

• Interest rates fall and credit is tight and businesses do not expand.

• Interest rates fall and credit is abundant and businesses do expand.

Which of the following is an example of expansionary monetary policy for the Federal Reserve where they are combating a recession and unemployment?

• decreasing government spending

• increasing interest rates

• increasing the reserve ratio

• decreasing the discount rate

Which of the following would be an appropriate contractionary monetary policy measure for the Federal Reserve should take to combat inflation?

• buy bonds

• increase taxes

• decrease the discount rate

• increase reserve requirements

Use this image to answer the following question.

When the economy is operating at point C, the Federal Reserve may decrease the discount rate (the interest rate it charges banks) to

• decrease inflation

• decrease economic growth

• slow the economy

• increase economic growth