Economic Systems & Monetary Policy Quiz

1. Which of the following best describes a traditional economy?

• Decisions are made by central government planners
• Decisions are based on customs, traditions, and beliefs
• Decisions are made by private businesses seeking profit
• Decisions are based on consumer preferences only

2. In a command economy, who makes most of the economic decisions?

• Consumers
• Businesses
• Government Planners
• Foreign Investors

3. What is the defining feature of a market economy?

• Central government control of resources
• Collective ownership of all property
• Individual choice and voluntary exchange
• Decisions based solely on tradition

4. Which economic system combines elements of both market and command systems?

• Traditional
• Mixed
• Free-Market
• Subsistance

5. What is the main goal of monetary policy?

• Increase government spending
• Regulate international trade
• Manage the money supply and interest rates
• Control natural resources

6. Which institution is responsible for monetary policy in the United States?

• U.S. Treasury
• Congress
• Federal Reserve
• Supreme Court

7. If the Federal Reserve raises interest rates, what is the likely short-term effect?

• Borrowing becomes cheaper
• Spending and investment decrease
• Inflation increases
• The money supply expands rapidly

8. Which action would the Federal Reserve take to fight high inflation?

• Lower reserve requirements
• Buy government bonds
• Raise interest rates
• Print more money

9. Which action would the Federal Reserve take to fight high unemployment?

• Raise Interest Rates
• Lower Interest Rates
• Sell Government Bonds
• Increase Taxes

10. In an expansionary monetary policy, the Federal Reserve is most likely to:

• Increase interest rates
• Restrict credit
• Increase the money supply
• Encourage saving over spending