Question 1

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

Accepted Answer

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

Question 2

Suppose a bank receives a deposit of $1,000 and the required reserve ratio is 10%. What is the maximum amount of money that can be created in the banking system from this deposit?

Accepted Answer

$10,000

Question 3

According to the quantity theory of money, if the money supply increases by 5% and velocity and real output remain constant, what is the expected change in the price level?

Accepted Answer

The price level will increase by 5%.

Question 4

The short-run Phillips curve illustrates 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 central bank's policy interest rate

Question 6

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

Accepted Answer

A leftward shift of the aggregate demand curve

Question 7

Which of the following best describes discretionary fiscal policy?

Accepted Answer

Deliberate changes in government spending and taxation to influence the economy

Question 8

What is the government spending multiplier if the marginal propensity to consume (MPC) is 0.8?

Accepted Answer

$$\frac{1}{1-0.8} = 5$$

Question 9

If the government increases taxes by $200 million and the tax multiplier is -3, what is the expected change in aggregate demand?

Accepted Answer

$$-600$$ million

Question 10

Which of the following is an example of an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance payments

Question 11

What is the main difference between expansionary and contractionary fiscal policy?

Accepted Answer

Expansionary fiscal policy increases aggregate demand, while contractionary fiscal policy decreases it.

Question 12

If the balanced-budget multiplier is 1, what is the effect on aggregate demand if the government increases both spending and taxes by $500 million?

Accepted Answer

$$+500$$ million

Question 13

What is 'crowding out' in the context of fiscal policy?

Accepted Answer

Government borrowing increases interest rates, reducing private investment.

Question 14

Which of the following best describes the supply-side effects of a tax simplification policy?

Accepted Answer

It can increase incentives to work and invest, potentially shifting the aggregate supply curve to the right.

Question 15

In the AD-AS model, what is the effect of an increase in government purchases on equilibrium output and price level?

Accepted Answer

Both equilibrium output and price level increase.

Question 16

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

Accepted Answer

Changing government spending

Question 17

If the central bank wants to decrease the money supply, which of the following actions should it take?

Accepted Answer

Sell government securities in the open market

Question 18

What is the formula for the deposit multiplier in the banking system?

Accepted Answer

$$\frac{1}{	ext{required reserve ratio}}$$

Question 19

Which of the following policies would be most effective in combating high unemployment during a recession?

Accepted Answer

Expansionary fiscal policy, such as increasing government spending

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