Fiscal and Monetary Policy Actions in the Short Run

Question 1

Which of the following policy combinations would most effectively maintain the price level while encouraging business investment?

AA contractionary monetary policy and an expansionary fiscal policy

BAn expansionary monetary policy and an expansionary fiscal policy

CA contractionary monetary policy and no change in fiscal policy

DNo change in monetary policy and a contractionary fiscal policy

EAn expansionary monetary policy and a contractionary fiscal policy

Question 2

An economy in long-run equilibrium will experience inflation if which of the following policy actions are combined?

ADecreasing government spending and selling government bonds on the open market

BDecreasing government spending and increasing the discount rate

CDecreasing income taxes and increasing the income tax rate

DIncreasing the required reserve ratio and increasing the discount rate

EIncreasing government spending and increasing the money supply

Question 3

Which of the following policy combinations is most likely to lower the unemployment rate?

ADecreasing taxes and buying government bonds in the open market

BIncreasing taxes and buying government bonds in the open market

CIncreasing government spending and selling government bonds in the open market

DDecreasing government spending and selling government bonds in the open market

EDecreasing both taxes and government spending

Question 4

LRAS Price Level SRAS AD Real GDP