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    Worksheet On Fiscal Policy

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    subham chakraborty
    The document contains a worksheet with 12 multiple choice questions about fiscal policy and monetary policy. The questions cover topics like the tools used by the Federal Reserve and fiscal policy, the appropriate actions for each policy during different economic conditions like inflation or recession, and the goals and effects of each policy.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Worksheet On Fiscal Policy

    Uploaded by

    subham chakraborty
    65 views4 pages
    The document contains a worksheet with 12 multiple choice questions about fiscal policy and monetary policy. The questions cover topics like the tools used by the Federal Reserve and fiscal policy, the appropriate actions for each policy during different economic conditions like inflation or recession, and the goals and effects of each policy.

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    The document contains a worksheet with 12 multiple choice questions about fiscal policy and monetary policy. The questions cover topics like the tools used by the Federal Reserve and fiscal policy, the appropriate actions for each policy during different economic conditions like inflation or recession, and the goals and effects of each policy.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    65 views4 pages

    Worksheet On Fiscal Policy

    Uploaded by

    subham chakraborty
    The document contains a worksheet with 12 multiple choice questions about fiscal policy and monetary policy. The questions cover topics like the tools used by the Federal Reserve and fiscal policy, the appropriate actions for each policy during different economic conditions like inflation or recession, and the goals and effects of each policy.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Worksheet on Fiscal Policy

    Justify your chosen option

    1. Please refer to the following chart to answer question number 1

    Federal Reserve Tools Fiscal Policy Tools


    Discount rate taxing
    Reserve Requirement spending
    borrowing

    One tool is missing from the Federal Reserve’s list of tools. Which would be the term to fill in
    that third box?
    a. buy/sell securities
    b. Board of Governors
    c. Monetary Policy
    d. district banks

    Answer: (c) Monetary policy


    This measure/policy is adopted by the federal bank of our country to control the interest
    rate payable on short term borrowings.

    2. If the economy is in an inflationary period, what action would Fiscal Policy most likely take?
    a) Decrease taxes
    b) Decrease the discount rate
    c) Increase taxes
    d) Increase spending

    Answer: (c) Increase taxes


    In an inflation period I would prefer to choose in increasing the taxes because in such
    scenario the income would be high and so to balance the situation and put a control on
    spending this fiscal policy should be implemented.

    3. If GDP is raising and the unemployment rate is decreasing, what actions would Monetary
    Policy and Fiscal Policy take to try to fix this economic situation?
    Federal Reserve Fiscal Policy

    a. raise the Discount rate lower taxes


    b. lower the Federal Funds rate raise taxes
    c. lower the Discount rate decrease spending

    d. raise the Federal Funds rate decrease spending


    Answer: (d) Raise the federal funds rate decrease spending
    I believe that if the GDP is high already then off course the rates at which the bank
    borrows and lend excess reserves form one another on an overnight basis would increase
    this would be the contractionary monetary policy and when the unemployment is already
    low and the GDP is high the government will spend less this will reduce the disposable
    income and will slow the growth of the economy

    4. If Fiscal Policy is trying to promote stability and economic growth through tax cuts, what
    type of policy is Fiscal policy using?
    a) Expansionary Fiscal Policy
    b) Restrictive Fiscal Policy
    c) Easy Money Policy
    d) Tight Money Policy

    Answer: (a) Expansionary Fiscal Policy


    It is adopted to boost the economy and allow the crowd to invest more and the tax cut
    will also allow more investment which in turn will help the economy to revive

    5. If a nation currently has a budget deficit, their income is not covering the cost of running
    their country. If this budget is not revised, what could be a possible result of this situation?
    a) A budget surplus
    b) A balanced budget
    c) A mounting debt
    d) Discretionary fiscal policy

    Answer: (c) A Mounting Debt


    As already there is a budget deficit and the income is not covering the cost of running the
    country so it may lead to extreme depth situation

    6. Which of the following best describes the goal of Monetary Policy?


    a) Controlling taxes
    b) Controlling the national debt
    c) Controlling the money supply
    d) Stopping inflation

    Answer: (c) Controlling the money supply


    I believe option (c) best describes the monetary policy. Monetary policy is primary
    designed to control the supply of money across the system.
    7. If the Federal Reserve is trying to promote economic stability by lowering the Federal Funds
    rate, what action would Fiscal Policy take?
    a) Lowering taxes
    b) Increasing taxes
    c) Decreasing spending
    d) Decreasing borrowing

    Answer: (a) Lowering taxes


    Fiscal policy would preferably take a step by lowering the taxes. The government can
    encourage the investments by the public and thus can give a boost to the economy.

    8. A consumer is at the store and purchases a new vacuum cleaner. At checkout, that consumer
    will have to pay an additional tax on that purchase; a sales tax. What type of tax is a sales
    tax?
    a) Progress tax
    b) Proportional tax
    c) Keynesian Tax
    d) Personal Income tax

    Answer: (b) Proportional tax


    As the sales tax is constant for all income groups thus it is a part of proportional tax

    9. If the economy is in a recession, the Fed could do all of the following EXCEPT
    a) Lower taxes
    b) Lower the Discount rate
    c) Lower the Federal Funds rate
    d) Buy securities

    Answer: (d) Buy Securities


    In a situation of recession, the Fed cannot buy securities. All the other three options
    would help the economy to revive back and thus allow more investments and liquidity
    but buying securities can add on to the recession as the debt associated would increase.

    10. How are Fiscal Policy and the Federal Reserve similar?
    a) They both use the same tools to fix economic problems
    b) They both try to promote economic stability
    c) They always must have Congressional approval before passing
    d) They both have a Board of Governors
    Answer: (b) They both try to promote economic stability
    As per my views Fiscal Policy and Federal Reserve are similar in one way, as they both
    try to promote economic stability. Both government and the RBI focusses on boosting the
    economy, therefore the monetary and fiscal policies should go together.

    11. If you are a classical economist, which statement would you support?
    a) Let the economy work out its own problems
    b) The more the government spends to improve the economy, the better
    c) The government should be involved to help during recessions
    d) The government is the key to economic success

    Answer: (a) Let the economy work out its own problems
    Being a classical economist, I would preferably say that let the economy work out its own
    problem. This concept was brought by Adam Smith a well-known economist who
    believed that no government should intervene in certain economic situations.

    12. Which of the following sequences best represents the crowding-out effect?

    a. government purchases supply of money


    equilibrium interest rate quantity of goods and services demanded
    b. government purchases demand for money
    equilibrium interest rate quantity of goods and services demanded
    c. government purchases demand for money
    equilibrium interest rate quantity of goods and services demanded
    d. taxes GDP demand for money equilibrium interest rate
    quantity of goods and services demanded

    Answer: (a) government purchase supply of money


    Crowding out is an economic concept that describes a situation where personal
    consumption of goods and services and investments by business are reduced

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