Chapter 9 Fiscal and Monetary Policy Test

What is Fiscal Policy?

• Fiscal policy refers to the government's foreign policy decisions.
• Fiscal policy involves the regulation of interest rates by the government.
• Fiscal policy is the management of a country's currency exchange rate.
• Fiscal policy is the government's use of taxation and spending to influence the economy.

What is the difference between Expansionary and Contractionary Policies?

• Expansionary policies focus on reducing economic activity, while contractionary policies focus on boosting inflation.
• Expansionary policies focus on preventing economic bubbles, while contractionary policies focus on boosting economic activity.
• Expansionary policies focus on reducing inflation, while contractionary policies focus on boosting economic activity.
• Expansionary policies focus on boosting economic activity, while contractionary policies focus on reducing inflation and preventing economic bubbles.

What is Keynesian theory?

• Keynesian theory focuses solely on individual consumer behavior
• Keynesian theory advocates for government intervention in the economy to stabilize output and employment levels.
• Keynesian theory suggests that government should not intervene in the economy
• Keynesian theory promotes a completely free market economy

What did President Reagan do to promote economic recovery in the 1980s?

• Implemented supply-side economics
• Reduced government spending on infrastructure
• Implemented demand-side economics
• Increased taxes on the middle class

What is the difference between budget surplus and budget deficit?

• Budget surplus is when expenses exceed income, while budget deficit is when income exceeds expenses.
• Budget surplus is when income equals expenses, while budget deficit is when expenses exceed income.
• Budget surplus is when income exceeds expenses, while budget deficit is when income equals expenses.
• Budget surplus is when income exceeds expenses, while budget deficit is when expenses exceed income.

When government borrows money, it adds to the ___________, the total amount of money the government owes to bondholders.

• public expenditure
• national debt
• federal budget
• government deficit

How will lowering income taxes decrease the national debt?

• Lowering income taxes will discourage investment, resulting in a decrease in tax revenues.
• Lowering income taxes can stimulate economic growth, leading to increased tax revenues that can be used to pay off the national debt.
• Lowering income taxes will lead to increased government spending, worsening the national debt.
• Lowering income taxes will cause inflation, devaluing the currency and increasing the national debt.

What two things might produce growing inflation?

• Decreased consumer demand and limited money supply
• Lowering interest rates and increasing lending

• Increased consumer demand and limited money supply
• Decreased consumer demand and excessive money supply

What would you consider as a prime rate?

• The prime rate is the interest rate that commercial banks charge their most creditworthy customers.
• The prime rate is the interest rate that commercial banks charge their least creditworthy customers.
• The prime rate is the interest rate that commercial banks charge for mortgage loans.
• The prime rate is the interest rate that commercial banks charge for personal loans.

What is the Federal Reserve's most commonly used monetary policy tool?

• Open market operations
• Quantitative easing
• Reserve requirement
• Discount rate