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Quiz - Worksheets - Cures - Inflation - Monetary Policy - Economics bank - Virtual US Bank of Biz/ed

Monetary Policy - Inflation - Cures

Quiz - Inflation - how can we fix it?

1. Identify each of the following statements as either true or false.

  • Increased interest rates will give savers a better return and overall are likely to create a higher level of consumption in the economy.
    (Select one answer)

(a) * True
(b) * False

       
  • A cut in tax rates will encourage people to work harder and shift the aggregate supply curve to the left.
    (Select one answer)

(a) * True
(b) * False

       
  • Increased investment by firms will increase aggregate demand in the short-run and aggregate supply in the long-run.
    (Select one answer)

(a) * True
(b) * False

       
  • An increase in the rate of interest is likely to attract investment into the US and lead to an appreciation of the exchange rate.
    (Select one answer)

(a) * True
(b) * False

       
  • A decrease in the level of government expenditure will help reduce inflation, but may adversely affect the potential level of output.
    (Select one answer)

(a) * True
(b) * False

       
2. Which of the following policies would be most effective at reducing the level of demand in the economy?
(Select one answer)

(a) * allowing the exchange rate to depreciate
(b) * increasing tax-free allowances for income tax
(c) * reducing trade union power to prevent wages rising as fast
(d) * increasing income tax rates

       
3. Which of the following policies would be most effective at increasing the productive potential of the economy?
(Select one answer)

(a) * increasing interest rates to increase saving
(b) * reducing income tax rates
(c) * increased government expenditure
(d) * allowing the exchange rate to appreciate

       
4. The Humphrey-Hawkins Full Employment Act sets an inflation rate for the Federal Reserve.

(a) * True
(b) * False

       
5. For each of the policies / events given below, select either AS1 or AS2 on the diagram to show how aggregate supply is likely to change as a result. Start each time from the original AS curve.
Changes in Aggregate Supply
  • An increase in hours spent in schools on teaching reading and math to improve educational standards.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • Imposing a training levy on firms to encourage more spending on training.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • Increasing income tax levels.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • The introduction of further, more detailed employment legislation.
    (Select one answer)

(a) * AS1
(b) * AS2

       
  • Various mergers between trade unions create more monopoly power among trade unions.
    (Select one answer)

(a) * AS1
(b) * AS2

       
6. For each of the policies / events given below, select either AD1 or AD2 on the diagram to show how aggregate demand is likely to change as a result. Start each time from the original AD curve.
Changes in Aggregate Demand
  • A depreciation of the exchange rate.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • Government encouragement of increased business investment.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • A reduction in defense spending arising from the end of the 'Cold War'.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • A reduction in the National Debt reduces interest payments on the debt.
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • An increase in the level of interest rates set by the Federal Open Market Committee (FOMC).
    (Select one answer)

(a) * AD1
(b) * AD2

       
  • An increase in expected inflation.
    (Select one answer)

(a) * AD1
(b) * AD2

       
7. Which of the following types of monetary policy are currently used by the US Federal Reserve to support the fight against inflation?
(Select one or more answers)

(a) * Credit controls
(b) * Changing reserve requirements
(c) * Interest rate changes
(d) * Open market 'repo' operations
(e) * Monetary Base Control

       
8. Which of the following are included in the measurement of the monetary base (M1)?
(Select one or more answers)

(a) * Currency on deposit in banks
(b) * Currency in circulation
(c) * Demand Deposits in banks
(d) * Other Checkable Deposits
(e) * Other Checkable Deposits

       
9. The graph below shows a business cycle - a cyclical pattern of economic growth. Select the point(s) that you feel best fit(s) with the description given in each question.
Trade cycle
  • A point where you would be expecting the FOMC to be increasing the rate of interest.
    (Select one answer)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

   
  • When economic growth is slowing and inflationary pressure is low, the FOMC will typically reduce interest rates as inflationary pressures are likely to be lowest where economic growth is falling.
    (Select one or more answers)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

       
  • A point where supply-side constraints are likely to be forcing prices up.
    (Select one answer)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

   
  • Points where you would expect a high level of cyclical unemployment.
    (Select one or more answers)

(a) * Point 1
(b) * Point 2
(c) * Point 3
(d) * Point 4
(e) * Point 5

       
10. When did the Federal Reserve begin to be concerned about the contraction and expansion of the money supply?
(Select one answer)

(a) * 1913
(b) * 1930s
(c) * 1940s
(d) * 1950s

       
11. Tight monetary policy to reduce inflation requires a higher level of interest rates. Which of the following is likely to occur from this?

  • Increased investment
    (Select one answer)

(a) * Yes
(b) * No

   
  • Reduced costs for firms
    (Select one answer)

(a) * Yes
(b) * No

   
  • Increased government expenditure
    (Select one answer)

(a) * Yes
(b) * No

   
  • An improved competitive position overseas
    (Select one answer)

(a) * Yes
(b) * No

   
  • Slower growth in potential output
    (Select one answer)

(a) * Yes
(b) * No