Government Policy

Which policy action represents expansionary fiscal policy during a recession?

• Increasing tax rates
• Decreasing government spending
• Increasing government spending
• Reducing the money supply

What is the primary goal of monetary policy during an inflationary gap?

• To increase the money supply
• To decrease the money supply
• To maintain current money supply levels
• To eliminate the money supply entirely

How does lowering the reserve requirement affect the economy?

• It decreases the money supply
• It allows banks to lend more money
• It reduces bank lending
• It has no effect on lending

During a recession, what is the self-correcting mechanism for wages?

• Wages immediately increase
• Wages remain constant
• Wages gradually decrease
• Wages become more volatile

Which monetary policy tool involves the Federal Reserve buying or selling government securities?

• Reserve requirements
• Discount rate
• Open market operations
• Tax policy

What is the primary effect of cutting taxes during a recession?

• Immediate decrease in aggregate supply
• Increase in disposable income
• Decrease in consumer spending
• Reduction in aggregate demand

How does increasing the discount rate affect the economy?

• Encourages bank borrowing
• Increases the money supply
• Discourages bank borrowing
• Has no effect on bank behavior

What happens to aggregate demand when government spending increases?

• It shifts left
• It shifts right
• It remains unchanged
• It becomes more elastic

During an inflationary gap, which fiscal policy measure would be most appropriate?

• Increasing government spending
• Decreasing taxes
• Increasing taxes
• Maintaining current spending

How does selling government bonds affect the money supply?

• Increases the money supply
• Decreases the money supply
• Has no effect on money supply
• Eliminates the money supply