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Economics, 7/e

David Begg, Birkbeck College, University of London
Rudiger Dornbusch
Stanley Fischer

Monetary and fiscal policy

Self-test Questions

Select the radio button corresponding to your choice of answer for each question, and then click on "Submit Answers" to find out how many you answered correctly.


1	All of the following are types of monetary policy except

		A)	a nominal money stock target
		B)	a balanced budget
		C)	an inflation target
		D)	a Taylor rule

2	A Taylor rule advocates changing interest rates in response to changes in __________ and ___________

		A)	inflation, unemployment
		B)	unemployment, output
		C)	inflation, output
		D)	unemployment, output

3	A schedule which shows combinations of interest rates and output compatible with short-run equilibrium in the goods market is known as ____________

		A)	aggregate demand
		B)	the LM schedule
		C)	the IS schedule
		D)	the investment demand schedule

4	In the LM schedule, __________ interest rates are associated with __________ output

		A)	higher, lower
		B)	lower, higher
		C)	higher, higher
		D)	lower, lower
		E)	a and b
		F)	c and d

5	A fiscal contraction, other things equal, shifts the IS schedule to the ___________, resulting in _________ income and ___________ interest rates

		A)	left, lower, lower
		B)	left, higher, higher
		C)	right, lower, lower
		D)	right, higher, higher

6	If fiscal policy is unaltered, and monetary policy has achieved a reduction in interest rates and an increase in income, we can deduce that the LM schedule has ___________

		A)	shifted to the left
		B)	shifted to the right
		C)	not moved
		D)	changed slope

7	If people do not spend tax cuts because they expect to have to pay it back in the future they are exhibiting the principle of ____________

		A)	risk aversion
		B)	crowding out
		C)	fiscal contraction
		D)	Ricardian equivalence

8	A mixture of tight fiscal policy and easy monetary policy implies relatively high share of ____________ and a low share of ______________

		A)	public sector investment, private sector investment
		B)	public sector consumption, private sector consumption
		C)	public sector employment, private sector employment
		D)	private sector investment, public sector investment

9	Fiscal policy may be more effective through automatic stabilizers because it is difficult __________ and politically difficult to ________________

		A)	to adjust quickly, reverse
		B)	to adjust carefully, maintain
		C)	to adjust quickly, maintain
		D)	to adjust carefully, reverse

10	The intersection of the IS schedule and LM schedule represents equilibrium in the goods and money markets

		A)	TRUE
		B)	FALSE

11	An increase in government spending will stimulate private spending by causing a reduction in interest rates

		A)	TRUE
		B)	FALSE

12	The evidence suggests that tax cuts do have some effect and that extreme Ricardian equivalence is unlikely

		A)	TRUE
		B)	FALSE

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