Question 1

Which of the following best describes the primary function of money in an economy?

Accepted Answer

Money serves as a medium of exchange, a unit of account, and a store of value.

Question 2

If the required reserve ratio is 10%, what is the deposit multiplier? Use the formula $$Deposit\ Multiplier = \frac{1}{Required\ Reserve\ Ratio}.$$

Accepted Answer

$$Deposit\ Multiplier = \frac{1}{0.10} = 10$$

Question 3

According to the quantity theory of money, what is the long-term implication for monetary policy if the money supply grows faster than real output?

Accepted Answer

It will result in long-term inflation.

Question 4

The short-run Phillips curve shows the relationship between which two economic variables?

Accepted Answer

Inflation and unemployment.

Question 5

Which of the following is considered an expansionary monetary policy?

Accepted Answer

Lowering the interest rate.

Question 6

In the AD-AS model, what is the effect of contractionary monetary policy?

Accepted Answer

It shifts the aggregate demand curve to the left.

Question 7

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

Accepted Answer

Open market operations.

Question 8

What is the main difference between automatic stabilizers and discretionary fiscal policy?

Accepted Answer

Automatic stabilizers operate without new government action, while discretionary policy requires deliberate changes.

Question 9

Which of the following best describes a contractionary fiscal policy?

Accepted Answer

Decreasing government spending and raising taxes.

Question 10

In the AD-AS model, what is the effect of expansionary fiscal policy?

Accepted Answer

It shifts the aggregate demand curve to the right.

Question 11

How do you calculate the government spending multiplier in the AD-AS model? Use the formula $$Multiplier = \frac{1}{1 - MPC}$$, where $$MPC is $$the marginal propensity to consume.

Accepted Answer

$$Multiplier = \frac{1}{1 - MPC}$$

Question 12

What is crowding out in the context of fiscal policy?

Accepted Answer

When government borrowing leads to higher interest rates, reducing private investment.

Question 13

Which of the following is an example of a supply-side effect of a tax simplification?

Accepted Answer

It encourages greater labor supply and investment.

Question 14

If the marginal propensity to consume (MPC) is 0.8, what is the tax multiplier? Use the formula $$Tax\ Multiplier = -\frac{MPC}{1 - MPC}.$$

Accepted Answer

$$Tax\ Multiplier = -\frac{0.8}{1 - 0.8} = -4$$

Question 15

Which of the following best describes the balanced-budget multiplier?

Accepted Answer

It is always equal to one.

Question 16

What is the main goal of monetary policy?

Accepted Answer

To control the money supply and interest rates to achieve macroeconomic objectives.

Question 17

Which of the following is a discretionary fiscal policy action?

Accepted Answer

Legislated increase in government spending for infrastructure projects.

Question 18

What is the effect of an expansionary fiscal policy on the business cycle?

Accepted Answer

It tends to increase aggregate demand and stimulate economic activity.

Question 19

Which of the following is NOT a component of the AD-AS model?

Accepted Answer

Interest rate.

Question 20

If the government increases both taxes and spending by $100 billion, what is the total effect on GDP according to the balanced-budget multiplier?

Accepted Answer

GDP increases by $100 billion.

Key Concepts in Monetary and Fiscal Policy: Exam Study Guide

Guida di studio - Domande di pratica

Study guide - Flashcard