Fiscal and Monetary Policy: Impact on Macroeconomic Outcomes

Question 1

Which monetary policy tool involves buying and selling government bonds to influence the money supply?

Accepted Answer

Open market operations

Answer

Reserve requirements

Answer

Price controls

Answer

Fiscal stimulus

Question 2

Quantitative easing, a monetary policy tool, involves:

Accepted Answer

Purchasing government bonds to increase the money supply

Answer

Raising interest rates to combat inflation

Answer

Selling government bonds to reduce the money supply

Answer

Imposing a tax on consumer spending

Question 3

A government budget deficit arises when:

Accepted Answer

Government expenses exceed government revenue

Answer

Government revenue surpasses expenses

Answer

Government expenses equal revenue

Answer

Government borrowing increases

Question 4

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

Accepted Answer

Government spending

Answer

Open market operations

Answer

Interest rate changes

Answer

Reserve requirements

Question 5

Expansionary fiscal policy involves:

Accepted Answer

Increasing government spending and cutting taxes

Answer

Reducing government spending and raising taxes

Answer

Maintaining current levels of government spending and taxation

Answer

Borrowing money from abroad to fund government projects

Question 6

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

Accepted Answer

Fiscal policy

Answer

Open market operations

Answer

Reserve requirements

Answer

Quantitative easing

Question 7

The Bank of England's Monetary Policy Committee is responsible for:

Accepted Answer

Setting interest rates

Answer

Managing the government budget

Answer

Enforcing competition law

Answer

Regulating the financial sector

Question 8

The Phillips curve illustrates the relationship between:

Accepted Answer

Inflation and unemployment

Answer

Interest rates and economic growth

Answer

Government spending and taxation

Answer

Exchange rates and trade balances

Question 9

The multiplier effect refers to the:

Accepted Answer

Amplification of the impact of government spending on aggregate demand

Answer

Reduction in economic activity caused by increased taxation

Answer

Stabilizing effect of monetary policy on economic growth

Answer

Inverse relationship between inflation and unemployment

Question 10

The Laffer curve illustrates the relationship between:

Accepted Answer

Tax rates and tax revenues

Answer

Interest rates and inflation

Answer

Economic growth and unemployment

Answer

Government spending and aggregate demand

Question 11

Which of the following is a primary objective of monetary policy?

Accepted Answer

To control inflation

Answer

To manage economic growth

Answer

To stabilize the exchange rate

Answer

To reduce unemployment

Question 12

What is the impact of an expansionary monetary policy on interest rates?

Accepted Answer

Decreases interest rates

Answer

Increases interest rates

Answer

Has no effect on interest rates

Answer

May increase or decrease interest rates depending on market conditions

Question 13

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

Accepted Answer

Interest rate adjustments

Answer

Government spending

Answer

Taxation

Answer

Changes in government borrowing

Question 14

Typically, an increase in government spending will lead to:

Accepted Answer

Increased output and employment

Answer

Reduced inflation

Answer

A stronger currency exchange rate

Answer

Lower interest rates

Question 15

What is the primary objective of the Bank of England's Monetary Policy Committee?

Accepted Answer

Maintaining price stability

Answer

Maximizing economic output

Answer

Controlling unemployment

Answer

Managing foreign exchange rates

Question 16

Which term describes a situation with simultaneously high inflation and high unemployment?

Accepted Answer

Stagflation

Answer

Phillips curve

Answer

Demand-pull inflation

Answer

Cost-push inflation

Question 17

How did the Great Depression shape the evolution of fiscal and monetary policy?

Accepted Answer

It led to a shift towards more active government economic policies, including fiscal and monetary interventions.

Answer

It reinforced the importance of balanced budgets and low government debt.

Answer

It demonstrated the effectiveness of quantitative easing in addressing deflation.

Answer

It strengthened the independence of central banks from political influence.

Question 18

During a recession, the government decides to increase spending on infrastructure projects. This is an example of which type of fiscal policy?

Accepted Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Answer

Monetary policy

Answer

Supply-side policy

Question 19

Which of the following is NOT a tool used by the Bank of England to manage monetary policy?

Accepted Answer

Tax rates

Answer

Reserve requirements

Answer

Quantitative easing

Answer

Interest rates

Question 20

If the Bank of England increases interest rates, what is the likely impact on aggregate demand?

Accepted Answer

Decrease aggregate demand

Answer

Increase aggregate supply

Answer

Have no effect on aggregate demand

Answer

Increase aggregate demand

Question 21

A government budget surplus occurs when:

Accepted Answer

Government revenue exceeds government spending

Answer

Government spending exceeds government revenue

Answer

Unemployment is low

Answer

Inflation is high

Question 22

What is the primary objective of expansionary fiscal policy?

Accepted Answer

To stimulate economic growth

Answer

To control inflation

Answer

To reduce government debt

Answer

To reduce unemployment

Question 23

What is a potential drawback of using fiscal policy to manage the economy?

Accepted Answer

Time lags in implementation

Answer

It can be used to target specific industries

Answer

It does not have any significant drawbacks

Answer

It is a very effective tool for controlling inflation

Question 24

Quantitative easing involves the central bank:

Accepted Answer

Buying government bonds to inject liquidity into the economy

Answer

Raising interest rates to curb inflation

Answer

Lowering reserve requirements for commercial banks

Answer

Reducing government spending to reduce the budget deficit

Question 25

If the Bank of England lowers the reserve requirement imposed on commercial banks, what is the likely effect on the money supply?

Accepted Answer

Increase the money supply

Answer

Have no effect on the money supply

Answer

Decrease the money supply

Answer

Increase government spending

Question 26

The government implements a tax cut to encourage consumer spending. This is an example of:

Accepted Answer

Expansionary fiscal policy

Answer

Monetary policy

Answer

Contractionary fiscal policy

Answer

Supply-side policy

Question 27

During a period of high inflation, which type of monetary policy would be most appropriate?

Accepted Answer

Contractionary monetary policy

Answer

Expansionary monetary policy

Answer

Supply-side policy

Answer

No action is required