Fiscal Policy & Monetary Policy

Practice Government Test

I do notset interest rates!

I’m in charge ofTaxes & Gov’t

Spending

Business Cycle

Both Fiscal Policy & Monetary Policy attempt to “smooth” the “ups & downs” of the Business Cycle

Expansionary Fiscal policy would include:

A. Lowering Taxes

B. Raising Gov’t spending

C. Increasing the National Debt

D. All listed are true (A, B & C)

E. Only A & B are true

The U.S. Debt is approximately:

A. 11 Trillion => 35% of GDP

B. 11 Trillion => 70% of GDP

C. 9 Trillion => 25% of GDP

D. 9 Trillion => 90% of GDP

E. What debt?

The U.S. currently has a

A. Cyclical deficit

B. Structural deficit

C. Seasonal deficit

D. Frictional deficit

Which is NOT true about crowding out?

A. It is an economic theory

B. It has not occurred in the U.S. (yet….)

C. As the national debt ↑, crowding out threatens to increase short term interest rates

D. The 800 billion Fiscal Stimulus plan could lead to crowding out in the future…

E. All listed are TRUE

Which statement is NOT true

A. AS is flat during recessions

B. The U.S. economy is currently in section-1

C. In section-3, the Fed should worry about inflation

D. In section-3 the unemployment rate could be 5%

E. All listed are TRUE

Inflation

RealGDP

AS1AS1

1 2

3

The Economy in the graph urgently requires:

A. Expansionary Fiscal policy

B. Contractionary Fiscal Policy

C. Loose Monetary Policy

D. Tight Monetary Policy

E. None of the above

AD1AD1

Inflation

RealGDP

AS1AS1

Which is not true about expansionary fiscal policy

A. Consumers get tax cuts

B. Gov’t increases spending

C. AD shifts to the right

D. The unemployment rate falls

E. All listed are true

PriceLevel

RealGDP

AS1AS1

AD1AD1AD1 AD2AD2AD2AD2

The Federal Reserve

A. Can increase money supply by selling bonds

B. Can lower income taxes

C. Can lower interest rates by buying bonds

D. Controls long term interest rates

E. Only A & C are true

If interest rates increase, which is true:

A. Borrowing money becomes more expensive

B. You are less likely to buy a house

C. You are less likely to buy a car

D. People have a higher incentive to save

E. All listed are true

5%

10% ?

Who is hurt by rising inflation

A. People who live on a fixed income

B. People who are in large amounts of debt

C. People who have saved money

D. All listed (A, B, C)

E. Only A & C

Raising Income tax rates will:

A. increase tax revenue

B. decrease tax revenue

C. Not meaningfully increase tax revenue

D. “It Depends” on the current level of income taxes

Which economists would favor tax credits for solar power companies

A. Keynesian Economists

B. Classical Economists

C. Supply Side Economists

D. No economist would support tax credits