Economics Unit 5 Test

_______________  the setting of the level of government spending and taxation by government policymakers.

• Fiscal Policy
• Money Supply
• Inflation

Policymakers can influence aggregate supply/demand

• True
• False

An increase in the money supply reduces the interest rate stimulating investment spending.

• monetary policy
• fiscal policy
• government

The money supply is controlled by the Federal Reserve

• True
• False

changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action.

• automatic stabilizer
• hyperinflation
• fiscal policy

A government can pay for some of its spending simply by printing money. When countries rely heavily on this “inflation tax,” defined as inflation that exceeds 50% per month.

• Hyperinflation
• inflation
• recession 

Fisher effect: when the inflation rate rises, the nominal interest rate rises by the same amount, so that the real interest rate remains the same.

• True
• False

Inflation: raises nominal incomes, is measured as a % change in the CPI & GDP, and influences a consumers purchasing power.

• True
• False

Inflation: raises nominal incomes, is measured as a % change in the CPI & GDP, and influences a consumers purchasing power.

• True
• False

_____________ associated with reduced money holdings: Inflation erodes the value of money that you carry in your pocket, you can avoid this drop in value by holding less money (meaning more trips to the bank).

• shoeleather costs
• menu costs
• unintended changes