INTRODUCTION ECONOMIC MICRO

The allocative function in government budgeting determines how government revenue will be spent.

• TRUE

• FALSE

Which monetary policy tool is used by central banks to influence interest rates?

• A. Open market operations

• B. Reserve requirements

• C. Discount rate

• D. All of the above

1. The tax multiplier is always larger than the expenditure multiplier.

• TRUE

• FALSE

5. When the economy is growing too fast and inflation becomes a problem, what monetary policy stance will the central bank take?

• 5. A. Expansionary

• 5. B. Contractionary

• 5. C. Neutral

• 5. D. No policy

7. If the expenditure multiplier is 4, what is the tax multiplier?

• A. 3

• B. 4

• C. 5

• D. 6

8. What is the formula to calculate the tax multiplier?

• 8. A. Tax multiplier = MPC/MPS

• 8. B. Tax multiplier = -MPC/MPS

• 8. C. Tax multiplier = MPS/MPC

• 8. D. Tax multiplier = -MPS/MPC

10. When the government gives a tax cut, what happens to consumer spending?

• A. Cannot be predicted

• 10. B. Decreases

• 10. C. Stays the same

• D. Increases

What is monetary policy?

• A. Monetary policy is the action taken by private banks to control inflation

• B. Monetary policy is the action taken by a country's central bank to achieve macroeconomic policy objectives.

• C. Monetary policy is the action taken by the government to regulate public spending and taxes.

• D. Monetary policy is the action taken by the government to regulate international trade.

What is the tax multiplier in relation to real GDP?

• A. The tax multiplier is the ratio of changes in total real GDP caused by changes in taxes.

• B. The tax multiplier is the ratio of changes in total investment caused by changes in taxes.

• C. The tax multiplier is the ratio of changes in total consumption caused by changes in taxes.

• D. The tax multiplier is the ratio of changes in total exports caused by changes in taxes.

Contractionary fiscal policies such as raising taxes and reducing government spending aim to slow the economy and reduce inflation.

• TRUE

• FALSE