Fiscal & Monetary Policy - Macro Topic 5.1

What are the three possible states an economy can be in at any given time?

• Growth, Stagnation, Decline

• Recession, Full Employment, Inflationary Gap

• Expansion, Peak, Contraction

• Boom, Bust, Recovery

To stimulate an economy experiencing a recession, what fiscal policy actions would typically be implemented?

• Decrease government spending and increase taxes.

• Increase government spending and decrease taxes.

• Increase the money supply and decrease interest rates.

• Decrease the money supply and increase interest rates.

Which of the following monetary policy tools would the central bank use to help an economy recover from a recession?

• Increase the reserve requirement.

• Increase the discount rate.

• Sell government bonds.

• Buy government bonds.

If an economy is experiencing an inflationary gap, what fiscal policy measure would be appropriate to stabilize prices?

• Decrease taxes.

• Increase government spending.

• Increase taxes.

• Lower the discount rate.