Understanding Economic Policies

What does Fiscal Policy involve?

• Managing the economy by controlling the money supply and interest rates

• Managing the economy by controlling taxing and spending

• Selling certificates to raise money

• Decreasing aggregate demand to control inflation

What is a Budget Surplus?

• Government policy to manage the economy by spending

• A shortfall of tax revenue from government spending

• An excess of tax revenue over government spending

• The total amount a government owes

Which policy is used to decrease aggregate demand or supply?

• Expansionary Fiscal Policy

• Budget Deficit

• Monetary Policy

• Contractionary Fiscal Policy

What are Intra-governmental Holdings?

• Debts the federal government owes to other governments

• Debts the federal government owes to itself

• Marketable securities sold by the government

• Policies obligating Congress to pay benefits

What is the purpose of Expansionary Fiscal Policy?

• To manage the economy by controlling the money supply

• To decrease government spending and increase taxes during inflation

• To increase aggregate demand and expand real output

• To increase government purchases and decrease net taxes to shrink real output

What is a budget deficit?

• When a government's expenditures exceed its revenues

• When a government's revenues exceed its expenditures

• When a government's debt is fully paid off

• When a government has balanced its budget

Which of the following does the Federal Reserve use to regulate the nation's money supply?

• Fiscal policy

• Proposing legislation

• Monetary policy

• Regulations

Answer explanation

The Federal Reserve uses monetary policy to regulate the nation's money supply by adjusting interest rates, reserve requirements, and open market operations.

What makes up the largest area of discretionary spending?

• Food Stamps
• Military
• Social Security
• Interest payments

When the government spends more than it collects.

• Surplus
• Supply
• Deficit
• Demand

What is a challenge of fiscal policy?

• Lag times in recognition, assessment, and execution.

• It moves too fast

• Fiscal policy can be confusing

• Fiscal policies are designed by voters