Understanding Fiscal vs. Monetary Policy

Which of the following is a primary tool of monetary policy used by the Federal Reserve?

• Taxation

• Government Spending

• Interest Rates

• Trade Tariffs

What happens to the money supply when the Federal Reserve increases interest rates?

• The money supply increases

• The money supply decreases

• The money supply remains unchanged

• The money supply becomes unpredictable

Which department of the federal government does the Federal Reserve belong to?

• Department of Treasury

• Department of Commerce

• Department of the Interior

• None

If inflation is rising, what is the Federal Reserve likely to do?

• Lower interest rates

• Increase interest rates

• Increase government spending

• Decrease taxes

What is the primary goal of fiscal policy?

• Control inflation

• Manage unemployment

• Regulate the money supply

• Influence economic activity through government spending and taxation

If the economy needs stimulating, what is the government likely to do?

• Increase taxes

• Decrease government spending

• Increase government spending

• Increase interest rates

Explain how an increase in interest rates can affect consumer spending and business investment.

• It encourages more consumer spending and business investment.

• It discourages consumer spending and business investment.

• It has no effect on consumer spending and business investment.

• It only affects consumer spending, not business investment.

Which of the following is NOT a tool of fiscal policy?

• Taxation

• Government Spending

• Open Market Operations

• Budget Deficits

Describe the relationship between fiscal policy and economic growth.

• Fiscal policy has no impact on economic growth.

• Fiscal policy can stimulate or slow down economic growth through changes in government spending and taxation.

• Fiscal policy only affects inflation, not economic growth.

• Fiscal policy is only concerned with regulating the money supply.

What is the likely effect on inflation if the Federal Reserve decides to lower interest rates?

• Inflation is likely to decrease

• Inflation is likely to increase

• Inflation will remain unchanged

• Inflation will become unpredictable