EPF Unit 1 Review

Which event would MOST likely signal that the economy has entered a period of expansion?

• Rising unemployment
• Decreasing consumer confidence
• Increasing GDP growth
• Declining retail sales

During which stage of the business cycle do businesses MOST often reduce investment spending?

• Expansion
• Peak
• Contraction
• Recovery

If GDP decreases for two consecutive quarters, this BEST indicates the economy is in a:

• Peak
• Recession
• Expansion
• Recovery

When an economy is at its peak, what typically follows?

• Rising unemployment
• Increased consumer spending
• Falling interest rates
• Lower levels of inflation

When the Federal Reserve lowers interest rates, the goal is usually to:

• Slow consumer borrowing
• Increase government revenue
• Stimulate economic growth
• Reduce bank lending

Which action is an example of fiscal policy?

• Increasing government spending on infrastructure
• Lowering the reserve requirement for banks
• Setting the discount rate
• Adjusting the money supply

The Federal Reserve increases the money supply in order to:

• Reduce inflation
• Stimulate borrowing and investment
• Raise unemployment
• Strengthen the value of the dollar

Raising taxes and cutting public spending are examples of:

• Expansionary fiscal policy
• Contractionary fiscal policy
• Expansionary monetary policy
• Trade policy

If inflation rises rapidly, what is MOST likely to happen to the purchasing power of money?

• It increases
• It decreases
• It remains unchanged
• It becomes unpredictable

Why would a central bank want to maintain low and stable inflation?

• To ensure government spending decreases
• To allow consumers and businesses to plan long-term
• To encourage high unemployment
• To guarantee higher profits for banks