Demand + Supply Side Policies

Which of the following can work as automatic stabilisers?

• a progressive taxes and unemployment benefits

• b regressive taxes and unemployment benefits

• c progressive taxes and subsidies

• d unemployment benefits and subsidies

Fiscal policy involves

• a actions taken by the government to promote a more equal distribution of income

• b actions taken by the central bank to influence the money supply and interest rates

• c tax policies of the government

• d government policies on taxes and its own expenditure undertaken to influence aggregate demand

When the government increases its spending by borrowing, it may lead to a decrease in private investment. This is called

• a balanced budget

• b crowding out

• c industrial policy

• d deregulation

The policy of the central bank of decreasing the money supply in order to decrease aggregate demand is called _____________________ and works by _____________________.

• a contractionary monetary policy / increasing interest rates

• b contractionary monetary policy / decreasing interest rates

• c expansionary monetary policy / decreasing interest rates

• d expansionary monetary policy / increasing interest rates

Expansionary fiscal policy undertaken by the government involves

• a decreasing taxes and increasing government spending

• b increasing taxes and decreasing government spending

• c increasing taxes and increasing government spending

• d decreasing taxes and decreasing government spending

Rather than focus on the objectives of low inflation and low unemployment, some central banks pursue an alternative policy that involves

• a avoiding crowding out

• b setting an inflation target

• c achieving a balanced budget

• d reducing the level of public debt

In the money market, if the quantity of money demanded is greater than the quantity of money supplied, the interest rate will

• a rise

• b fall

• c remain unchanged

• d rise or fall depending on the amount of excess demand for money

If an economy faces a deflationary gap, the appropriate policy response may be

• a expansionary demand-side policies

• b expansionary fiscal policy

• c expansionary monetary policy

• d all of the above

Contractionary monetary and fiscal policies may be called for when the economy is

• a in a deflationary gap

• b in an inflationary gap

• c in full employment equilibrium

• d at a trough in its business cycle

Which of the following supply-side policies is less likely to have demand-side effects?

• a reducing unemployment benefits

• b reducing labour union power

• c provision of infrastructure

• d industrial policies