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fiscal and monetary policy MCQs

Practise focused fiscal and monetary policy questions with marked answers for exam preparation and subject revision.

fiscal and monetary policy Mcqs
1. A reflationary (expansionist) fiscal policy could include ?
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A. Increased lending by the banks

B. An increase in discretionary government spending

C. An increase in corporation tax

D. Lower interest rates

2. The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion is ?
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A. fiscal drag

B. debt burden

C. bracket creep

D. the Laffer curves
3. As the required reserve ratio is decreased the money multiplier ?
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A. decrease

B. remain the same, as long as bank hold no excess reserves

C. could either increase or decrease

D. increase
4. Fiscal Policy refers to ?
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A. The actions of the central bank in controlling the money supply

B. The governments attitude to taxation

C. The government regulation of financial intermediaries

D. The spending and taxing policies used by the government to influence the economy
5. The response lag of stabilization policy represents ?
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A. the time that it takes for policy makers to recognize the existence of boom of bust

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

C. the time that it takes for the economy to adjust to the new conditions after a new policy has been implemented

D. the time that is necessary to put the desired policy into effect

6. The implementation lag for monetary policy is generally ?
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A. unrelated to central bank action

B. the same as it is for fiscal policy

C. much shorter than it is for fiscal policy

D. mush longer than it is for fiscal policy

7. Fiscal drag occurs when ?
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A. Tax banks increase with inflation

B. Government spending falls to reduce aggregate demand

C. Tax bands do not increase with inflation

D. Tax rates move inversely with inflation

8. Net taxes are ?
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A. taxes paid by firms and households to the government minus the cost of collecting the taxes

B. government expenditures minus government revenues

C. Taxes paid firms and households to the government minus the transfer payments made to firms and household

D. Taxes paid by firms and households to the government plus transfer payments made to firm and households

9. Time lags which often erode effectiveness of monetary and fiscal policy measures represent ?
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A. the change in exports and imports prices

B. delays in the response of the economy is stabilization policy

C. the foreign response to price changes

D. the change in exchange rates

10. If the economy grows the governments budget position will automatically ?
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A. Stay the same

B. worsen

C. Improve

D. Increase with inflation

11. By financial crowding out economist mean ?
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A. government borrowing drives up interest rates

B. what the government borrows cannot be used for private investment

C. credit rationing

D. Bank of England controls on commercial bank lending

12. The idea that the money supply should change to accommodate changes in aggregate demand is associated with the idea of ?
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A. Margaret Thatcher

B. Milton Friedman

C. John Maynard Keynes

D. Ronald Reagan

13. If the marginal rate of tax is 40% and consumers income increase from Rs10,000 to Rs12,000 ?
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A. The amount of tax paid will increase by Rs 800

B. The amount of tax paid will increase by Rs4,800

C. The amount of tax paid will increase by Rs4,000

D. The total tax paid will be Rs4,800
14. Automatic stabilisers act to ____ government expenditures and ____ government revenues during recessions ?
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A. increase; decrease

B. decrease; decrease

C. increase: increase

D. decrease; increase

15. By controlling the monetary base economists mean ?
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A. making banks keep a certain % of their assets as M0

B. not allowing commercial banks to issue notes and coins

C. controlling the money multiplier

D. restricting the amount of cash in circulation

16. If the State Bank of Pakistan wished to pursue a tight monetary policy it would ?
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A. buy government securities on the open market

B. reduce the minimum reserve asset ratio.

C. sell government securities on the open market

D. lower interest rates

17. Automatic stabilizers act to ______ government expenditures and _______ government revenue during an expansionary period?
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A. increase; decrease

B. decrease; decrease

C. increase; increase

D. decrease; increase
18. If the state Bank of Pakistan wished to pursue an expansionary monetary policy it would ?
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A. buy government securities on the open market

B. increase the minimum reserve asset ratio.

C. sell government securities on the open market

D. raise interest rates

19. The multiple by which total deposits can increase for every pound increase in reserves is the ?
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A. liquidity ratio

B. required reserve ratio

C. banks line of credit

D. Money multiplier
20. A government might use tax to ?
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A. Discourage consumption of merit goods

B. Discourage consumption of negative externalities

C. Discourage consumption of public goods

D. Discourage consumption of positive externalities