Fiscal & Monetary Policy Unit Exam - Leyden High School

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Oct 28, 2013 (3 years and 5 months ago)

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Fiscal & Monetary Policy Unit Exam

Name: _________________________________________ Date: ________ Period: ________

1.

The distinguishing feature of a banking institution over other financial institutions is its
ability to

(a)

issue checks

(b)

provide financial servic
es

(c)

deal in debt

(d)

create credit

2.

The central characteristic of money is that it

(a)

is a store of wealth or value

(b)

acts as a medium of exchange

(c)

is a measure of value or unit of account

(d)

is a standard of deferred payment

3.

Assuming a 20% reserve ratio, a $500m increa
se in bank deposits will generate an
increase in new deposits of

(a)

$250m

(b)

$2500m

(c)

$2000m

(d)

$3000m

4.

The annual expression of fiscal policy in the light of current economic conditions. A
statement of anticipated revenue, expenditure and borrowing by the government

in a
year

(a)

government budget

(b)

discretionary fiscal policy

(c)

stabilization policies

(d)

government expenditure

5.

Length of time needed to establish economic trends and problems.

(a)

fiscal drag

(b)

crowding out

(c)

recognition lag

(d)

bracket creep

6.

Government macroeconomic policies

aimed at full employment, price stability and
external balance.

(a)

government expenditure

(b)

stabilization policies

(c)

discretionary fiscal policy

(d)

cyclical budget component

7.

The main role of the Federal Reserve is to

(a)

administer the government’s budget and fiscal p
olicy

(b)

provide advice to the government on the state of the economy

(c)

oversee the operations of the financial system and monetary
management

(d)

establish the value of the dollar and official interest rates

8.

The functions of the Federal Reserve include

(a)

minting al
l official medals and medallions

(b)

acting as the banker for the US government

(c)

determining national economic policy direction

(d)

providing finance to industry in the short
-
term

9.

An increase in the domestic money supply may be caused by

(a)

a government budget surplus

(b)

a persistent deficit on the current account of the balance of payments

(c)

the purchase of government securities by the Federal Reserve from
the money market

(d)

a reduction in bank lending

10.

The banking system can create credit because

(a)

loans by banking institution
s return as new deposits

(b)

interest is earned on loans

(c)

banks always make profits on their loan portfolio

(d)

money is a liquid asset which can be lent easily

11.

Those features of government finance which automatically act to counter balance
economic fluctuations.

(a)

a
utomatic stabilizers

(b)

impounding the surplus

(c)

cyclical budget component

(d)

domestic budget outcome

12.

The process of taxpayers moving into higher marginal tax brackets due to inflation
bringing windfall gains to government revenue.

(a)

fiscal drag

(b)

crowding out

(c)

recogni
tion lag

(d)

bracket creep

13.

A tax regime which claims an increasing proportion of income as income rises, i.e.,
where the marginal tax rate exceeds the average tax rate.

(a)

progressive tax

(b)

regressive tax

(c)

proportional tax

(d)

direct taxes

14.

Monetary policy is concer
ned with influencing

(a)

the general level of money wages

(b)

the level of government expenditure

(c)

the price and availability of money

(d)

the level of shares on the stock market

15.

The domestic money supply will tend to rise if

(a)

there is a deficit on the current account o
f the balance of payments

(b)

money market operations occur, involving the sale of government securities

(c)

banks increase their lending activities

(d)

the government announces a larger budget surplus

16.

The funds which a bank holds to meet its daily liquidity requirem
ents are called

(a)

high powered money

(b)

cash reserves

(c)

non
-
callable deposits

(d)

shareholders funds

17.

If the government wishes to reduce the amount of money in the economy it will

(a)

buy government securities through the Federal Reserve

(b)

lower the value of the dollar on w
orld currency markets

(c)

run a budget deficit

(d)

sell government securities, through the Federal Reserve

18.

A loosening of monetary policy by the Federal Reserve will lead to

(a)

higher interest rates and an expansion in the money supply

(b)

higher interest rates and a con
traction in the money supply

(c)

lower interest rates and an expansion in the money supply

(d)

lower interest rates and a contraction in the money supply

19.

Which of the following is a strength of monetary policy

(a)

time lags are short

(b)

its ability to restore business co
nfidence in a recession

(c)

its adaptability or flexibility

(d)

its effect on consumer behavior and economic activity are predictable

20.

Economic growth is best defined as an increase in

(a)

the volume of output produced in an economy

(b)

the production of goods and servic
es measured in real terms

(c)

total money supply in an economy

(d)

the value of exports and imports

21.

Economic growth is regarded as an important objective because it

(a)

leads to a diminution in world resources

(b)

always creates additional employment

(c)

enables countries to
adopt anti
-
inflation policies

(d)

ultimately leads to higher living standards for the community

22.

Rapid economic growth in the economy can lead to higher

(a)

structural unemployment

(b)

hidden unemployment

(c)

cyclical unemployment

(d)

long term unemployment

23.

The application of
changes in monetary policy is

(a)

faster and more flexible than fiscal policy changes

(b)

slower and less flexible than fiscal policy changes

(c)

faster but less flexible than fiscal policy changes

(d)

slower but more flexible than fiscal policy changes

24.

The appropriate mo
netary policy response of the Federal Reserve when faced with the
'crowding out' problem is to

(a)

increase official interest rates

(b)

purchase government securities from the money market

(c)

sell government securities to the money market

(d)

lend money to the governme
nt

25.

The level of business investment is influenced mainly by

(a)

changes in savings levels

(b)

changes in income levels

(c)

changes in nominal interest rates

(d)

changes in real interest rates

26.

Taxes are regressive when

(a)

the total amount paid in tax falls as income rises

(b)

the

percentage of income paid in tax rises as income rises

(c)

the percentage of income paid in tax falls as income rises

(d)

the marginal tax rate rises as income rises

27.

Fiscal policy refers to the manipulation of government income and expenditure to

(a)

control the vol
ume and price of money

(b)

limit the rate of increase in incomes

(c)

affect the value of the dollar on world financial markets

(d)

affect the level of total expenditure, output and employment

28.

A government budget surplus is where

(a)

the value of inflows of goods and servi
ces into the economy exceeds the value
of outflows

(b)

public sector borrowings are less than in the previous year

(c)

government expenditure exceeds revenue in a year

(d)

government revenue exceeds expenditure in a year

29.

If the government wishes to reduce the level of

economic activity in the economy,
appropriate fiscal policy would be

(a)

government bond sales by the Federal Reserve

(b)

decrease spending and/or increase the level of taxation

(c)

increase spending and/or decrease the level of taxation

(d)

decrease spending and/or dec
rease the level of taxation

30.

Fiscal drag occurs mainly

(a)

when income taxes are regressive in nature

(b)

when income taxes are progressive in nature

(c)

when unemployment benefits are reduced

(d)

when government tax revenue falls


Use the following premise to answer quest
ions 31
-
35. The Federal Reserve Open Market
Committee wishes to accommodate or reinforce a contractionary Fiscal policy

31.

Would the Fed

(a)

buy bonds

(b)

sell bonds

(c)

do neither

32.

What affect would the above policy have on bond prices and interest rates?

(a)

Bond prices wo
uld decrease, and interest rates would increase

(b)

Bond prices would decrease, and interest rates would decrease

(c)

Bond prices would increase, and interest rates would increase

(d)

Bond prices would increase, and interest rates would decrease

33.

What effect would thi
s policy have on bank reserves and the money supply?

(a)

Bank reserves would increase, and the money supply would increase

(b)

Bank reserves would decrease, and the money supply would increase

(c)

Bank reserves would increase, and the money supply would decrease

(d)

Bank
reserves would decrease, and the money supply would
decrease

34.

What affect would this policy have on the quantity of loanable funds demanded by the
private sector?

(a)

The bond sale would increase the supply of loanable funds and the increase in
interest rates w
ould decrease the quantity demanded of loanable funds

(b)

The bond sale would decrease the supply of loanable funds and the
increase in interest rates would decrease the quantity demanded of
loanable funds

(c)

The bond sale would decrease the supply of loanable f
unds and the increase in
interest rates would increase the quantity demanded of loanable funds

(d)

None of the above

35.

What effect would the change in interest rates you identified in 32 above have on
aggregate demand?

(a)

Aggregate demand would decrease because the

higher interest rates
would curtail interest
-
sensitive components of consumption and
investment

(b)

Aggregate demand would increase because the higher interest rates would
increase demand of interest
-
sensitive components of consumption and
investment

(c)

Aggrega
te demand would decrease because the lower interest rates would
curtail interest
-
sensitive
lending

by banks seeking higher returns.

(d)

Aggregate demand
has no impact on
components of consumption and
investment