#1
In the context of monetary policy, what is the primary tool used by central banks to influence interest rates?
Open market operations
ExplanationBuying or selling government securities to adjust the money supply.
#2
Which of the following is an example of discretionary fiscal policy?
Changes in tax rates during an economic downturn
ExplanationDeliberate changes in government spending or taxation.
#3
Which economic indicator is considered a lagging indicator of economic activity?
Consumer Price Index (CPI)
ExplanationReflects economic changes after they have occurred.
#4
Which of the following is an example of expansionary monetary policy?
Buying government securities
ExplanationIncreases money supply to stimulate economic growth.
#5
Which of the following is an example of a contractionary fiscal policy measure?
Cutting government spending
ExplanationReduces aggregate demand to control inflation.
#6
Which of the following is a leading economic indicator?
Stock market performance
ExplanationIndicates future economic trends.
#7
What is the Phillips Curve used to illustrate?
The relationship between inflation and unemployment
ExplanationShows the inverse relationship between inflation and unemployment.
#8
Which of the following is an example of an automatic stabilizer in fiscal policy?
Unemployment benefits
ExplanationProvides income support during economic downturns.
#9
What is the purpose of the Federal Reserve's dual mandate?
Maintain price stability and maximum sustainable employment
ExplanationAims to stabilize prices and promote full employment.
#10
What is the relationship between the money supply and the price level, according to the quantity theory of money?
Direct relationship
ExplanationAn increase in money supply leads to higher prices.
#11
Which monetary policy tool involves adjusting the interest rate at which banks borrow from the central bank?
Discount rate
ExplanationCentral bank sets the rate for borrowing funds.
#12
Which fiscal policy tool involves reducing government spending to control inflation?
Contractionary fiscal policy
ExplanationDecreases government expenditures to curb inflationary pressures.
#13
What does the term 'Laffer curve' represent in economics?
The trade-off between tax rates and tax revenue
ExplanationIllustrates the optimal tax rate that maximizes revenue.
#14
What is the term for a situation where the economy experiences both high inflation and high unemployment?
Stagflation
ExplanationSimultaneous occurrence of inflation and unemployment.
#15
In the IS-LM model, what does the LM curve represent?
Equilibrium in the money market
ExplanationDepicts equilibrium between money supply and demand.
#16
What is the term for the situation where the actual output is less than the potential output in an economy?
Recessionary gap
ExplanationIndicates underutilization of resources.
#17
In the context of fiscal policy, what is the crowding-out effect?
Decrease in private investment due to government borrowing
ExplanationGovernment borrowing reduces funds available for private investment.