Fiscal And Monetary Policy MCQs

Option A: Discourage consumption of positive externalities

Option B: Discourage consumption of public goods

Option C: Discourage consumption of merit goods

Option D: Discourage consumption of negative externalities

Correct Answer: Discourage consumption of merit goods ✔

Option A: The amount of tax paid increase with income

Option B: The marginal rate of tax decrease with more income

Option C: The average rate of tax falls as income increase

Option D: The average rate of tax is constant as income increases

Correct Answer: The average rate of tax falls as income increase ✔

Option A: worsen

Option B: Improve

Option C: Stay the same

Option D: Increase with inflation

Correct Answer: worsen ✔

Option A: The amount of tax paid will increase by Rs4,800

Option B: The amount of tax paid will increase by Rs4,000

Option C: The amount of tax paid will increase by Rs 800

Option D: The total tax paid will be Rs4,800

Correct Answer: The total tax paid will be Rs4,800 ✔

Option A: Lower interest rates

Option B: Increased lending by the banks

Option C: An increase in corporation tax

Option D: An increase in discretionary government spending

Correct Answer: Increased lending by the banks ✔

Option A: sells less government bonds than are required to finance the PSBR

Option B: sells more government bonds than are required to finance the PSBR

Option C: sells government securities on the open market

Option D: buys government securities on the open market

Correct Answer: sells more government bonds than are required to finance the PSBR ✔

Option A: reduce the minimum reserve asset ratio.

Option B: buy government securities on the open market

Option C: lower interest rates

Option D: sell government securities on the open market

Correct Answer: buy government securities on the open market ✔

Option A: bad money drives out good

Option B: monetary policy can only be effective if it is a long-term policy

Option C: controlling one part of the money supply will merely result in that item becoming less important

Option D: the money supply must only expand at the rate of growth of real national income

Correct Answer: controlling one part of the money supply will merely result in that item becoming less important ✔

Option A: could either increase or decrease

Option B: decrease

Option C: increase

Option D: remain the same, as long as bank hold no excess reserves

Correct Answer: increase ✔

Option A: is not sufficiently stimulating or contracting the economy at any time

Option B: is effective

Option C: is stimulating or contracting the economy at the wrong times

Option D: is desirable

Correct Answer: is stimulating or contracting the economy at the wrong times ✔

Option A: the same as it is for fiscal policy

Option B: much shorter than it is for fiscal policy

Option C: mush longer than it is for fiscal policy

Option D: unrelated to central bank action

Correct Answer: much shorter than it is for fiscal policy ✔

Option A: GDP decrease rapidly

Option B: GDP remains unchanged

Option C: GDP decrease slightly

Option D: GDP increase

Correct Answer: GDP increase ✔

Option A: increase; increase

Option B: decrease; increase

Option C: increase; decrease

Option D: decrease; decrease

Correct Answer: decrease; increase ✔

Option A: taxes paid by firms and households to the government minus the cost of collecting the taxes

Option B: Taxes paid firms and households to the government minus the transfer payments made to firms and household

Option C: Taxes paid by firms and households to the government plus transfer payments made to firm and households

Option D: government expenditures minus government revenues

Correct Answer: Taxes paid firms and households to the government minus the transfer payments made to firms and household ✔

Option A: The government’s budget position should automatically improve

Option B: The government’s budget position should automatically worsen

Option C: This will have no effect on the government’s budget position

Option D: This will reduce the government’s tax revenue

Correct Answer: B. The government’s budget position should automatically worsen ✔

Option A: A measure of the country’s trade position

Option B: A measure of the country’s budget position

Option C: A measure of the country’s total debt

Option D: A measure of the government’s monetary stance

Correct Answer: B. A measure of the country’s budget position ✔

Option A: The total tax paid / total income

Option B: Total income / total tax paid

Option C: Change in the tax paid / change in income

Option D: Change in income / change in tax paid

Correct Answer: Change in the tax paid / change in income ✔

Option A: Rs 50000

Option B: 20%

Option C: 25%

Option D: Rs 10000

Correct Answer: 20% ✔

Option A: Tax bands do not increase with inflation

Option B: Tax rates move inversely with inflation

Option C: Government spending falls to reduce aggregate demand

Option D: Tax banks increase with inflation

Correct Answer: Tax bands do not increase with inflation ✔

Option A: making banks keep a certain % of their assets as M0

Option B: controlling the money multiplier

Option C: restricting the amount of cash in circulation

Option D: not allowing commercial banks to issue notes and coins

Correct Answer: making banks keep a certain % of their assets as M0 ✔

Option A: increase the minimum reserve asset ratio.

Option B: buy government securities on the open market

Option C: raise interest rates

Option D: sell government securities on the open market

Correct Answer: buy government securities on the open market ✔

Option A: credit rationing

Option B: government borrowing drives up interest rates

Option C: Bank of England controls on commercial bank lending

Option D: what the government borrows cannot be used for private investment

Correct Answer: government borrowing drives up interest rates ✔

Option A: Margaret Thatcher

Option B: Ronald Reagan

Option C: Milton Friedman

Option D: John Maynard Keynes

Correct Answer: Milton Friedman ✔

Option A: Money multiplier

Option B: liquidity ratio

Option C: bank’s line of credit

Option D: required reserve ratio

Correct Answer: Money multiplier ✔

Option A: the time that it takes for policy makers to recognize the existence of boom of bust

Option B: the time needed for parliament to agree to a tax cut.

Option C: the time that is necessary to put the desired policy into effect

Option D: the time that it takes for the economy to adjust to the new conditions after a new policy has been implemented

Correct Answer: the time that it takes for the economy to adjust to the new conditions after a new policy has been implemented ✔

Option A: delays in the response of the economy is stabilization policy

Option B: the foreign response to price changes

Option C: the change in exports and imports prices

Option D: the change in exchange rates

Correct Answer: delays in the response of the economy is stabilization policy ✔

Option A: debt burden

Option B: the Laffer curves

Option C: bracket creep

Option D: fiscal drag

Correct Answer: the Laffer curves ✔

Option A: increase: increase

Option B: decrease; decrease

Option C: increase; decrease

Option D: decrease; increase

Correct Answer: increase; decrease ✔

Option A: The government regulation of financial intermediaries

Option B: The spending and taxing policies used by the government to influence the economy

Option C: The actions of the central bank in controlling the money supply

Option D: The government’s attitude to taxation

Correct Answer: The spending and taxing policies used by the government to influence the economy ✔