Comprehension Quiz: Fiscal Policy vs. Monetary Policy
Part I: For each of the following situations, indicate whether the action is an example of fiscal policy
or monetary policy.
1. The required reserve ratio is increased by 10%: ________________________________________.
2. Taxes are cut by 10% for all income levels: ____________________________________________.
3. The government increases spending in the 2004 fiscal year by $10 trillion: ___________________.
4. The government buys back $10 billion in US Savings Bonds: _____________________________.
5. The discount rate is increased from 5% to 5.5%: ________________________________________.
6. Taxes are increased by 12% for all income levels: _______________________________________.
Part II: For the following situations, circle the probable consequence of each action.
7. The government sells $12 billion in US savings bonds:
a. the money supply increases
b. the money supply decreases
8. Federal gasoline taxes are increased to 80 cents/gallon:
a. aggregate demand shifts to the left
b. aggregate demand shifts to the right
9. The prime rate is lowered by 2.5%:
a. the money supply increases
b. the money supply decreases
10. Government spending increases by 18% between 2001 and 2002:
a. aggregate demand shifts to the left
b. aggregate demand shifts to the right
11. The required reserve ratio is lowered by 2%:
a. the money supply increases
b. the money supply decreases
12. The government buys back $18 million in US savings bonds:
a. the money supply increases
b. the money supply decreases
Part III: Choose the best description of the each action.
13. Congress cuts taxes by 13% for all incomes.
a. expansionary policy
b. contractionary policy
c. tight-money policy
d. loose-money policy
14. During the Great Depression, Congress authorized billions of dollars in federal spending.
a. demand-side economics
b. supply-side economics
c. classical economics
15. In reaction to an economic downturn in the late 1970’s, Congress passed massive tax cuts.
a. demand-side economics
b. supply-side economics
c. classical economics
16. The inflation rate hits 7.5%, so the Federal Reserve raises the Discount Rate by three points.
a. expansionary policy
b. contractionary policy
c. tight-money policy
d. loose-money policy
17. Despite seven-straight years of falling GDP, the Congress of the nation of Dystopia takes no
action and awaits the self-regulating force of the invisible hand to fix the economy.
a. demand-side economics
b. supply-side economics
c. classical economics
18. The inflation rate hits 7.5%, so Congress postpones several large spending projects.
a. expansionary policy
b. contractionary policy
c. tight-money policy
d. loose-money policy