01
True or false
1 point
During a recession, tax payments may fall and eligibility for some benefits may rise without a new policy decision. These automatic changes can support household incomes.
Free Practice Quiz Question List
Objectives of Fiscal and Monetary Policy Online Quiz Questions
Use this free practice quiz with 20 questions to review Objectives of Fiscal and Monetary Policy, test your knowledge, and prepare for your next test or exam.
20 questions
02
Fill in the blank
1 point
If government spending exceeds revenue over a period, the government runs a .
03
Written response
1 point
What is the Federal Reserve’s longer-run inflation goal, measured by the annual change in the PCE price index? Enter the percentage value.
04
Choose one
1 point
A central bank lowers its policy rate. Which outcome best describes a typical channel through which this may support economic activity?
- A
They directly set wages and determine how many jobs businesses must provide.
- B
They generally make borrowing cheaper, which can encourage spending and investment.
- C
They automatically increase government transfers during a downturn.
- D
They guarantee that inflation immediately falls.
05
Choose one
1 point
A country is in a downturn and wants to use fiscal policy to support demand. Which action best fits that objective?
- A
Raise taxes and cut public spending to restrain demand.
- B
Ask the central bank to increase interest rates.
- C
Increase public spending or reduce taxes to support demand.
- D
Reduce transfers while leaving spending unchanged.
06
Written response
1 point
What is the name of the policy area in which a government uses taxation, public spending, and transfers to influence economic conditions?
07
Choose all
1 point
Which are the three broad functions commonly pursued through fiscal policy? Select all correct answers.
- A
Reducing the severity of recessions and preventing demand from overheating
- B
Setting the central bank’s policy rate
- C
Providing public goods and addressing market failures
- D
Using taxes and transfers to influence distribution and support people facing hardship
- E
Directly setting the prices charged by private businesses
08
Fill in the blank
1 point
A temporary public-works program adopted through a new policy decision is a fiscal measure.
09
True or false
1 point
A change in the central bank’s policy rate directly sets the number of jobs in the economy.
- A
True
- B
False
10
Choose all
1 point
Which measures can help assess employment and labor-market conditions? Select all correct answers.
- A
The unemployment rate
- B
The government’s budget surplus
- C
Job growth
- D
Labor-force participation
- E
The consumer price index alone
11
Choose one
1 point
A sudden rise in energy costs increases inflation while weakening economic activity. Why can this supply shock make policy choices especially difficult?
- A
It always reduces inflation while increasing employment.
- B
It can raise inflation while weakening economic activity, making the policy response difficult.
- C
It ensures that stimulus has no effect on demand.
- D
It affects fiscal policy but not monetary policy.
12
Choose one
1 point
What is an important limitation of using real GDP to assess economic outcomes?
- A
It captures how gains are distributed across households.
- B
It measures every aspect of social well-being.
- C
It measures output adjusted for price changes but does not show how gains are distributed.
- D
It directly measures whether public services meet their aims.
13
True or false
1 point
Central banks in every country have exactly the same legal mandate.
- A
True
- B
False
14
Open ended
1 point
A country is in a downturn, and its central bank is lowering borrowing costs. Explain how fiscal policy could complement this monetary easing, and identify one way their interaction could complicate price stabilization if inflation were already high.
15
Choose one
1 point
A country is in a downturn, and policymakers want to use fiscal policy to support demand. Which action best fits that objective?
- A
Increase public spending or reduce taxes to support demand.
- B
Reduce public spending and raise taxes to restrain demand.
- C
Raise interest rates to make household borrowing more expensive.
- D
Use transfers only to influence the distribution of income.
16
Choose one
1 point
During a recession, tax payments decline and eligibility for some benefits rises without any new government decision. What best describes these effects?
- A
A new public-works program is approved to provide jobs.
- B
Tax payments fall and eligibility for certain benefits rises as the economy weakens, without a new policy decision.
- C
The government changes tax rates through a newly passed measure.
- D
A central bank lowers its policy rate.
17
Choose one
1 point
A central bank raises its policy rate while inflationary pressure is strong. Which outcome best describes the usual channel through which this may help ease that pressure?
- A
Borrowing becomes cheaper, increasing spending and investment.
- B
The central bank directly reduces public spending and raises taxes.
- C
Borrowing and spending tend to be restrained, easing demand and inflationary pressure.
- D
Household wages and prices are immediately fixed at lower levels.
18
Written response
1 point
What broad fiscal-policy function describes using taxes and transfers to influence how income and resources are distributed and to support people facing hardship?
19
Written response
1 point
What is the economic term for a sudden event, such as a sharp rise in energy costs, that can raise inflation while weakening economic activity?
20
Choose one
1 point
The unemployment rate is unchanged, but job growth and labor-force participation have increased. What is the most appropriate way to assess employment conditions?
- A
Conclude that employment conditions have not changed because the unemployment rate is unchanged.
- B
Consider job growth and labor-force participation along with the unemployment rate before judging labor-market strength.
- C
Use inflation as the only measure of employment conditions.
- D
Treat labor-force participation as irrelevant if unemployment is stable.
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