Fiscal and Monetary Policy: Impact on Economic Activity

Question 1

Which action can a central bank take to increase the money supply through quantitative easing?

Accepted Answer

Buy government bonds

Answer

Raise interest rates

Answer

Increase reserve requirements

Answer

Sell foreign currency

Question 2

Which of the following is not a goal of fiscal policy?

Accepted Answer

Reducing social inequality

Answer

Stabilizing economic output

Answer

Promoting economic growth

Answer

Controlling inflation

Question 3

Quantitative easing is a form of:

Accepted Answer

Monetary policy

Answer

Fiscal policy

Answer

Supply-side policy

Answer

Demand-side policy

Question 4

An increase in government spending will cause:

Accepted Answer

Aggregate demand to shift right

Answer

Aggregate demand to shift left

Answer

Aggregate supply to shift left

Answer

Aggregate supply to shift right

Question 5

What is a major drawback of using fiscal policy?

Accepted Answer

Fiscal policy can take a long time to put into action.

Answer

Fiscal policy is not affected by monetary policy.

Answer

Fiscal policy always results in extra money in the budget.

Question 6

Which of the following is considered a tool of fiscal policy?

Accepted Answer

Government spending and taxation

Answer

Interest rates

Answer

Exchange rates

Answer

Tariffs

Question 7

What is the primary objective of monetary policy?

Accepted Answer

To control inflation

Answer

To reduce unemployment

Answer

To promote economic growth

Answer

To stabilize currency exchange rates

Question 8

Which of the following is an expansionary fiscal policy measure?

Accepted Answer

Increasing government spending

Answer

Raising taxes

Answer

Reducing government borrowing

Answer

Increasing interest rates

Question 9

What term refers to the overall level of prices for goods and services in an economy?

Accepted Answer

Inflation

Answer

Deflation

Answer

Recession

Answer

Depression

Question 10

Which of the following is a potential consequence of high inflation?

Accepted Answer

Reduced purchasing power

Answer

Increased investment

Answer

Lower unemployment

Answer

Stable currency exchange rates

Question 11

In the United Kingdom, which monetary policy tool is used by the Bank of England to control interest rates?

Accepted Answer

Bank Rate

Answer

Open Market Operations

Answer

Quantitative Easing

Answer

Reserve Ratio

Question 12

What is the primary responsibility of the Bank of England regarding the UK economy?

Accepted Answer

Setting interest rates

Answer

Regulating banks

Answer

Controlling government spending

Answer

Collecting taxes

Question 13

To address low economic growth and high unemployment, how should fiscal and monetary authorities use expansionary policies?

Accepted Answer

Increase government spending and lower interest rates

Answer

Increase government spending and raise interest rates

Answer

Reduce government spending and lower interest rates

Answer

Reduce government spending and raise interest rates

Question 14

What are the potential long-term effects of excessive government spending and expansionary monetary policy?

Accepted Answer

Increased inflation and national debt

Answer

Sustained economic growth

Answer

Reduced unemployment levels

Question 15

What is the typical impact of an increase in government spending?

Accepted Answer

An increase in aggregate demand

Answer

A decrease in aggregate demand

Answer

No change in aggregate demand

Answer

A decrease in inflation

Question 16

What is the primary objective of the Bank of England?

Accepted Answer

To maintain price stability

Answer

To promote economic growth

Answer

To control unemployment

Answer

To manage the exchange rate

Question 17

Which of the following is a graphical representation of the relationship between inflation and unemployment?

Accepted Answer

Phillips Curve

Answer

Aggregate Supply Curve

Answer

Laffer Curve

Answer

Lorenz Curve

Question 18

What is the typical impact of a depreciation of the exchange rate on the relative cost of exports and imports?

Accepted Answer

Exports become cheaper, imports become more expensive

Answer

Exports become more expensive, imports become cheaper

Answer

No change in relative costs

Answer

Both exports and imports become more expensive

Question 19

How does an expansionary fiscal policy, characterized by increased government spending and tax cuts, affect economic growth, inflation, and unemployment?

Accepted Answer

Increased economic growth, higher inflation, decreased unemployment

Answer

Decreased economic growth, higher inflation, increased unemployment

Answer

Increased economic growth, decreased inflation, increased unemployment

Answer

Decreased economic growth, decreased inflation, decreased unemployment

Question 20

What are the main challenges in coordinating fiscal and monetary policy? How can these challenges be overcome to maximize the effectiveness of both policies?

Accepted Answer

Clear communication, policy transparency, and collaborative decision-making can overcome coordination challenges.

Answer

Coordination between fiscal and monetary policy is unnecessary.

Answer

Fiscal and monetary policy should operate independently, without considering potential conflicts.

Answer

Coordination is only needed during economic crises.

Question 21

Which goal is NOT typically pursued by fiscal policy?

Accepted Answer

Income inequality reduction

Answer

Economic growth stabilization

Answer

Inflation management

Answer

Unemployment reduction

Question 22

Which type of government spending typically has an expansionary effect on aggregate demand?

Accepted Answer

Infrastructure development projects

Answer

Business investment subsidies

Answer

Social welfare payments to individuals

Answer

Paying interest on government loans

Question 23

Which of the following can be a potential negative effect of an expansionary monetary policy?

Accepted Answer

Inflation surge

Answer

Reduced investment

Answer

Increased unemployment

Answer

Improved balance of payments

Question 24

What is the primary responsibility of the Monetary Policy Committee (MPC) of the Bank of England?

Accepted Answer

Determining and setting interest rate levels

Answer

Overseeing the government's financial plans

Answer

Supervising commercial banks

Answer

Printing banknotes and coins

Question 25

Which fiscal policy measure is generally considered most effective for reducing short-term unemployment?

Accepted Answer

Programs offering job training and retraining

Answer

Increased government spending levels

Answer

Lower taxes for entrepreneurs and businesses

Answer

Raising interest rates

Question 26

What is the economic condition referred to when both inflation and unemployment are high?

Accepted Answer

Stagflation

Answer

Deflation

Answer

Hyperinflation

Answer

Economic slump

Question 27

Which monetary policy tool can the Bank of England employ to expand the money supply?

Accepted Answer

Open market operations

Answer

Reserve requirement adjustments

Answer

Implementing fiscal policy measures

Answer

Altering interest rates

Question 28

What is the primary reason for a central bank's independence?

Accepted Answer

Shielding monetary policy decisions from political influence

Answer

Increasing the government's borrowing capacity

Answer

Pursuing economic growth above all other objectives

Answer

Keeping prices of goods and services stable

Question 29

Which of the following is NOT a component of aggregate demand?

Accepted Answer

Foreign exports

Answer

Consumer spending

Answer

Business investment

Answer

Government expenditure

Question 30

What is the main aim of using fiscal policy during a recessionary period?

Accepted Answer

Boost aggregate demand

Answer

Reduce inflationary pressures

Answer

Stabilize exchange rates

Answer

Balance the government’s budget

Question 31

Which of the following is a tool of fiscal policy?

Accepted Answer

Government spending

Answer

Setting interest rates

Answer

Adjusting tariffs

Answer

Controlling the money supply

Question 32

What is the primary objective of monetary policy?

Accepted Answer

To control inflation

Answer

To reduce unemployment

Answer

To increase economic growth

Answer

To stabilize the exchange rate

Question 33

Which of the following is a quantitative easing measure?

Accepted Answer

Purchasing government bonds

Answer

Increasing interest rates

Answer

Reducing the money supply

Answer

Raising taxes

Question 34

What is the likely impact of expansionary fiscal policy on economic growth?

Accepted Answer

Increase

Answer

Decrease

Answer

No change

Answer

Cannot be determined

Question 35

What is the term for a situation where both inflation and unemployment are high?

Accepted Answer

Stagflation

Answer

Recession

Answer

Boom

Answer

Depression

Question 36

What is the primary tool used by the Bank of England to implement monetary policy?

Accepted Answer

Open market operations

Answer

Fiscal policy

Answer

Exchange rate controls

Answer

Direct lending

Question 37

What is the relationship between the exchange rate and the level of imports?

Accepted Answer

A weaker exchange rate leads to higher imports

Answer

A stronger exchange rate leads to lower imports

Answer

There is no relationship

Answer

It depends on the elasticity of demand

Question 38

What is the primary objective of fiscal policy?

Accepted Answer

To influence economic activity by adjusting government spending and taxation.

Answer

To regulate the financial sector.

Answer

To control the money supply.

Answer

To set interest rates.

Question 39

What term describes a situation where government spending exceeds its revenue?

Accepted Answer

Budget deficit

Answer

Budget surplus

Answer

Fiscal stimulus

Answer

Fiscal discipline

Question 40

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

Accepted Answer

To maintain price stability by controlling inflation

Answer

To promote economic growth

Answer

To regulate the banking system

Answer

To minimize unemployment

Question 41

What term describes a situation where inflation is significantly lower than expected?

Accepted Answer

Deflation

Answer

Hyperinflation

Answer

Stagflation

Answer

Hyperstagflation

Question 42

Which of the following is not a potential consequence of expansionary fiscal policy?

Accepted Answer

Increased unemployment

Answer

Increased economic growth

Answer

Increased inflation

Answer

Reduced interest rates

Question 43

What monetary policy instrument involves buying and selling government bonds to influence the money supply?

Accepted Answer

Open market operations

Answer

Quantitative easing

Answer

Discretionary fiscal policy

Answer

Fiscal drag

Question 44

What term describes the automatic adjustment of government spending and revenue in response to economic changes?

Accepted Answer

Fiscal drag

Answer

Fiscal contraction

Answer

Fiscal discipline

Answer

Fiscal expansion

Question 45

Which of the following is not a potential consequence of deflation?

Accepted Answer

Increased consumer spending

Answer

Increased unemployment

Answer

Reduced investment

Answer

Reduced economic growth

Question 46

Which of the following fiscal policy measures is intended to stimulate economic activity?

Accepted Answer

Increase government spending and reduce taxes

Answer

Increase taxes and reduce government spending

Answer

Reduce interest rates and sell government bonds

Answer

Increase interest rates and buy government bonds

Question 47

What is the primary objective of contractionary monetary policy?

Accepted Answer

Reduce inflation

Answer

Stabilize exchange rates

Answer

Increase economic growth

Answer

Lower unemployment

Question 48

Which of the following is classified as a direct tax?

Accepted Answer

Income tax

Answer

Council tax

Answer

Value-added tax (VAT)

Answer

Fuel duty

Question 49

Which measure is commonly used to indicate changes in the overall price level of goods and services?

Accepted Answer

Consumer Price Index (CPI)

Answer

Gross Domestic Product (GDP)

Answer

Unemployment rate

Answer

Balance of payments

Question 50

Quantitative easing, as a monetary policy tool, primarily aims to achieve which of the following?

Accepted Answer

Stimulate economic growth

Answer

Stabilize exchange rates

Answer

Control inflation

Answer

Reduce interest rates

Question 51

Which of the following is a potential limitation of using fiscal policy to manage economic activity?

Accepted Answer

Implementation can be slow

Answer

Has no impact on inflation

Answer

Can be highly effective

Answer

Always politically popular

Question 52

What is the term for an economic situation characterized by high levels of both inflation and unemployment?

Accepted Answer

Stagflation

Answer

Deflation

Answer

Hyperinflation

Question 53

Generally, what is the relationship between interest rates and investment?

Accepted Answer

Positive

Answer

Negative

Answer

No relationship

Answer

Depends on the level of inflation