Question 1

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

Accepted Answer

Money acts as a medium of exchange, facilitating transactions for goods and services.

Question 2

Which asset is considered the most liquid?

Accepted Answer

Cash (currency and coins)

Question 3

Suppose the economy is experiencing a recession. Which fiscal policy action is most likely to be used to stimulate aggregate demand?

Accepted Answer

Increase government spending and decrease taxes

Question 4

Which of the following is NOT one of the four main monetary policy goals of the Federal Reserve System?

Accepted Answer

Balanced federal budget

Question 5

In 1913, what was the main policy goal and purpose of the Federal Reserve System when it was established?

Accepted Answer

To prevent banking panics by acting as a lender of last resort

Question 6

During the 2007-2008 subprime mortgage crisis, what was the main goal of the Federal Reserve's policy actions?

Accepted Answer

To stabilize the financial system and prevent a collapse of financial institutions

Question 7

Which of the following best describes an automatic stabilizer in fiscal policy?

Accepted Answer

A fiscal mechanism, such as unemployment insurance, that automatically increases spending or reduces taxes when the economy slows

Question 8

Which of the following is the largest source of federal government revenue in the United States as of 2022?

Accepted Answer

Individual income taxes

Question 9

Social Security in the United States is best described as:

Accepted Answer

A pay-as-you-go system where current workers' taxes fund current retirees' benefits

Question 10

Which of the following is a major problem facing the Social Security system in the United States?

Accepted Answer

An aging population leading to more beneficiaries relative to workers

Question 11

Which of the following best describes contractionary fiscal policy?

Accepted Answer

Decreasing government spending and/or increasing taxes to reduce aggregate demand

Question 12

If the Federal Reserve wants to decrease the money supply, which of the following actions would it most likely take?

Accepted Answer

Sell government securities in the open market

Question 13

Which of the following equations correctly represents the money multiplier, given a required reserve ratio $$rr$$?

Accepted Answer

$$m = \frac{1}{rr}$$

Question 14

Suppose the government enacts a tax cut designed to stimulate spending during a recession. Which of the following best explains the expected effect on aggregate demand?

Accepted Answer

Aggregate demand will increase as consumers have more disposable income to spend.

Question 15

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 16

Medicare in the United States is primarily designed to provide health insurance for which group?

Accepted Answer

Individuals over the age of 65

Question 17

Which of the following best describes discretionary fiscal policy?

Accepted Answer

Deliberate changes in government spending or taxes to influence economic activity

Question 18

If the required reserve ratio is 10%, what is the simple money multiplier?

Accepted Answer

$$m = 10$$

Question 19

Which of the following best explains why people hold money instead of other assets?

Accepted Answer

Money is the only asset that can be used to purchase goods and services immediately.

Question 20

Which of the following is a government transfer payment?

Accepted Answer

A Social Security check sent to a retiree

Money, Monetary Policy, and Fiscal Policy: Key Concepts and Applications

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