Macro- Macroeconomic policies PART 1

Question 1

True or False: Monetary policy and fiscal policy changes affect aggregate demand through different routes, but they tend to have similar effects on the level of demand, output and prices

Answer 1

True

Question 2

The major objective of monetary policy being pursued by the Bank of England is to achieve

Answer 2

A target rate of inflation

Question 3

“Lower interest rates normally increase the growth of demand in an economy.” The policy measure described above is an example of

Answer 3

An expansionary monetary policy

Question 4

True or False: As people earn higher incomes, they tend to pay a rising percentage of that income in taxation to the government

Answer 4

True

Question 5

A budget deficit means that

Answer 5

Government spending exceeds tax revenues

Question 6

A government faces falling tax revenues and rising benefit payments. This is likely to be due to

Answer 6

high unemployment

Question 7

Suppose a drop in consumer and business confidence results in a recession. In order to move the economy out of the recession, an expansionary fiscal policy would include

Answer 7

An expansion of the money supply

Question 8

Which of the following is NOT an example of the use of fiscal policy?

1. A reduction in government spending on training
2. The use of the exchange rate to control inflation
3. A planned increase in the government’s budget deficit
4. Tax concessions given to businesses locating in regions of high unemployment

Answer 8

The use of the exchange rate to control inflation

Question 9

An increase in AD is brought about by various fiscal policy decisions. Among these might be

1) Increasing indirect taxes
2) Increasing the budget deficit
3) Reducing interest rates
4) Reducing income tax allowances

Answer 9

Increasing the budget deficit