Fiscal and Monetary Policy Quiz

What is the primary goal of expansionary fiscal policy?

• To reduce inflation

• To boost the economy through government spending and taxation

• To decrease government debt

• To increase interest rates

Which of the following is a tool of expansionary monetary policy?

• Increasing income tax

• Reducing the Base Rate

• Deregulation

• Privatization

What does quantitative easing involve?

• Increasing taxes

• Printing new money to buy bonds from banks

• Reducing government spending

• Increasing interest rates

What is a potential risk of deregulation mentioned in the document?

• Increased inflation

• Liquidity trap

• Risk behavior of banks

• Decreased productivity

What is the inflation target mentioned for expansionary monetary policy?

• 1% +/- 0.5% CPIH

• 2% +/- 1% CPIH

• 3% +/- 1% CPIH

• 4% +/- 1% CPIH

What is a challenge associated with supply-side policies?

• They are quick to implement

• They guarantee increased productivity

• They can be costly and take a long time to show results

• They always work in all sectors

What is the effect of a liquidity trap?

• Increased lending by banks

• Banks holding onto cash instead of lending

• Decreased government spending

• Increased taxation

What is one of the policy tools used in expansionary fiscal policy?

• Reducing the Base Rate

• Privatization

• Reducing income tax

• Deregulation

What is a potential outcome of expansionary fiscal policy when the economy is near full capacity?

• Deflation

• Inflation

• Increased unemployment

• Decreased GDP

What is a feature of enterprise zones mentioned in the document?

• They increase interest rates

• They are set up to attract firms through tax breaks

• They decrease government spending

• They increase income tax