Fiscal/ Monetary policy

Which of the following can work as automatic stabilisers?

• progressive taxes and unemployment benefits

• regressive taxes and unemployment benefits

• progressive taxes and subsidies

• unemployment benefits and subsidies

Fiscal policy involves

• actions taken by the government to promote a more equal distribution of income

• actions taken by the central bank to influence the money supply and interest rates

• tax policies of the government

• government policies on taxes and its own expenditure undertaken to influence aggregate demand

When the government increases its spending by borrowing, it may lead to a decrease in private investment. This is called

• balanced budget

• crowding out

• industrial policy

• deregulation

The policy of the central bank of decreasing the money supply in order to decrease aggregate demand is called _____________________ and works by _____________________.

• contractionary monetary policy / increasing interest rates

• contractionary monetary policy / decreasing interest rates

• expansionary monetary policy / decreasing interest rates

• expansionary monetary policy / increasing interest rates

Expansionary fiscal policy undertaken by the government involves

• decreasing taxes and increasing government spending

• increasing taxes and decreasing government spending

• increasing taxes and increasing government spending

• decreasing taxes and decreasing government spending

In the money market, if the quantity of money demanded is greater than the quantity of money supplied, the interest rate will

• rise

• fall

• remain unchanged

• rise or fall depending on the amount of excess demand for money

If an economy faces a deflationary gap, the appropriate policy response may be

• expansionary demand-side policies

• expansionary fiscal policy

• expansionary monetary policy

• all of the above

Which of the following can be a weakness of monetary policy?

• its lack of political constraints

• its possible performance in a deep recession

• its incremental adjustment of interest rates

• its effects on budget deficits and debt

Cyclical unemployment can be best corrected through the use of

• expansionary demand-side policies

• contractionary demand-side policies

• interventionist supply-side policies

• market-based supply-side policies

Contractionary demand-side policies may be problematic in dealing with cost-push inflation because

• they make the inflation worse

• they increase structural unemployment

• they make the recession worse

• they may be ineffective in reducing inflation