Fiscal and Monetary Policy Concepts

What are the two main tools governments use to manage the economy?

• Fiscal policy and trade policy

• Monetary policy and social policy

• Fiscal policy and monetary policy

• Environmental policy and fiscal policy

  
  

Which action is an example of fiscal policy aimed at stimulating the economy?

• Lowering interest rates

• Increasing government spending

• Raising taxes

• Open market operations.

What action is an example of fiscal policy used to slow down the economy & reduce inflation?

• increase interest rates

• decrease taxes

• increase taxes

• reduce the money supply

Who decides how much money is spent on different programs & how much money is raised through taxes?

• the citizens

• politicians

• the federal courts

• major corporations

What is a reason fiscal policy can be slow & cumbersome?

• Governments can take long to pass budgets

• Presidents can veto tax legislation

• Local & state legislatures can get into heated debates

• The Fed Chairman must get unanimous approval to raise interest rates

Who manages the money supply & interest rates?

• The President

• The Federal Reserve

• The House of Representatives

• The Senate

Why does the central bank (Federal Reserve) lower interest rates?

• to make it cheaper to borrow money

• to make it expensive to borrow money

• to help build more infrastructure

• to get people to use their debit cards more

What action does the central bank take to slow down the economy & reduce inflation?

• lower interst rates

• lower taxes

• raise interest rates

• raise taxes

What is a major challenge of monetary policy?

• the effects are difficult to predict

• An increse in spending can lead to inflation

• slowing the economy down can lead to unemployment

• higher taxes means less spending

Understanding the difference between fiscal policy and monetary policy helps us understand how ____________ and ____________ are trying to manage the economy.

• Businesses & Shareholders

• Presidents & Legislatures

• governments & central banks

• Investors & entrepreneurs