#1
Which of the following is a tool used by central banks to control the money supply?
Monetary policy
ExplanationCentral banks use monetary policy to regulate the money supply.
#2
What is the primary objective of expansionary fiscal policy?
To stimulate economic growth
ExplanationExpansionary fiscal policy aims to boost economic activity.
#3
What is the primary goal of contractionary fiscal policy?
To control inflation
ExplanationContractionary fiscal policy aims to curb inflationary pressures.
#4
Which of the following is NOT a component of aggregate demand?
Foreign investment
ExplanationForeign investment is not part of aggregate demand.
#5
What is the primary tool used by central banks to implement monetary policy?
Regulating interest rates
ExplanationCentral banks primarily adjust interest rates to implement monetary policy.
#6
What is the name of the policy that involves reducing government spending or increasing taxes to cool down an overheated economy?
Contractionary fiscal policy
ExplanationContractionary fiscal policy aims to reduce aggregate demand during periods of overheating.
#7
What is the purpose of using reserve requirements as a tool of monetary policy?
To control the money supply
ExplanationReserve requirements help central banks control the amount of money circulating in the economy.
#8
Which of the following is NOT a tool of monetary policy?
Government spending
ExplanationGovernment spending is not typically a tool of monetary policy.
#9
In the context of macroeconomic policy, what is the Phillips curve used to illustrate?
The relationship between inflation and unemployment
ExplanationThe Phillips curve shows the tradeoff between inflation and unemployment rates.
#10
What is the name of the policy that involves the government reducing taxes or increasing spending to stimulate the economy?
Expansionary fiscal policy
ExplanationExpansionary fiscal policy involves government actions to boost economic activity.
#11
Which of the following best describes the 'crowding out' effect in economics?
Decreased private investment due to increased government borrowing
ExplanationCrowding out occurs when government borrowing reduces funds available for private investment.
#12
Which of the following is a characteristic of a recessionary gap?
Potential output exceeds actual output
ExplanationA recessionary gap occurs when potential output is higher than actual output.
#13
What is the primary goal of a central bank's open market operations?
To regulate interest rates
ExplanationOpen market operations are conducted to influence interest rates.
#14
What is the primary concern of policymakers during a period of stagflation?
Rising inflation and unemployment simultaneously
ExplanationPolicymakers worry about both inflation and unemployment rising together during stagflation.
#15
Which of the following is a potential consequence of contractionary monetary policy?
Reduced consumer spending
ExplanationContractionary monetary policy can lead to decreased consumer spending.
#16
What is the name of the policy aimed at stabilizing the economy over the business cycle by increasing government spending during economic downturns?
Discretionary fiscal policy
ExplanationDiscretionary fiscal policy involves deliberate government interventions to stabilize the economy.
#17
Which of the following is an example of an automatic stabilizer in fiscal policy?
Unemployment insurance
ExplanationUnemployment insurance automatically kicks in during economic downturns to stabilize incomes.
#18
What effect does an increase in the money supply typically have on interest rates?
Decreases interest rates
ExplanationExpanding the money supply usually leads to lower interest rates.
#19
What is the primary purpose of counter-cyclical fiscal policy?
To stabilize the economy over the business cycle
ExplanationCounter-cyclical fiscal policy aims to smooth economic fluctuations over the business cycle.