5.1: Fiscal & Monetary Policy Action In The Short Run

Question 1

Are fiscal and monetary policy work together or separate

Answer 1

Together

Question 2

What combination of fiscal and monetary policies can close a negative output ?

Answer 2

Fiscal
- lower taxes
- increase gov. spending

Monetary Policy
- Decrease reserve requirements
- Decrease discount rate
- Buy Bonds

Question 3

Which of the following combinations of fiscal and monetary policies will correct a severe recession?

(A) Increase income tax & decrease money supply

(B) Increase both income tax rates & money supply

(C) decrease both income tax rates & money supply

(D) Decrease income tax rates and increase money supply

(E) decrease income tax rates & increase federal funds rate

Answer 3

D

Question 4

Which combo of monetary and fiscal policies reduces unemployment?

(A) Buying gov. bonds & increase taxes

(B) Buying gov. bonds & decrease taxes

(C) Selling gov. bonds & increase gov. spending

(D) Selling gov. bonds & decrease spending.

(E) Selling gov.bonds & increasing taxes

Answer 4

B

Question 5

If there is a reduction aggregate supply and increase in aggregate demand, which of the following will definitely occur?

(A) Output will increase

(B) Output will decreases

(C) Output will not change.

(D) The price level will increase

(E) The price level will decrease

Answer 5

D