Monetary and Fiscal Policy MCQs

 

Monetary and Fiscal Policy MCQs

Instructions: Choose the best answer for each question.

Monetary Policy

1. Which of the following is a tool used by the central bank to control the money supply in the economy? a) Tax rates
   b) Government spending
   c) Repo rate (Correct Answer)
   d) Public debt

2. An increase in the repo rate by the central bank would lead to: a) Lower borrowing costs for businesses
   b) Increased availability of credit in the market
   c) Reduced borrowing and investment (Correct Answer)
   d) Higher inflation

3. Open market operations involve the central bank buying and selling: a) Government bonds (Correct Answer)
   b) Foreign currency
   c) Individual company stocks
   d) Real estate

Fiscal Policy

4. The primary objective of fiscal policy is to: a) Control interest rates
   b) Manage government debt
   c) Achieve economic goals like growth and stability (Correct Answer)
   d) Regulate commercial banks

5. An increase in government spending would likely: a) Decrease aggregate demand
   b) Stimulate economic growth (Correct Answer)
   c) Reduce the budget deficit
   d) Lower tax revenue

6. A decrease in tax rates is an example of: a) Expansionary fiscal policy (Correct Answer)
   b) Contractionary fiscal policy
   c) Quantitative easing
   d) Open market operations

Monetary and Fiscal Policy Interaction

7. Expansionary monetary policy (low interest rates) and expansionary fiscal policy (increased spending) would likely lead to: a) Higher inflation
   b) Lower unemployment (Correct Answer)
   c) Decreased economic growth
   d) A budget surplus

8. Contractionary monetary policy (high interest rates) and contractionary fiscal policy (decreased spending) are used to: a) Increase inflation
   b) Reduce inflation (Correct Answer)
   c) Stimulate economic activity
   d) Encourage borrowing

9. Fiscal policy is generally considered to have a: a) More immediate impact on the economy (Correct Answer)
   b) Longer-term impact on the economy
   c) No impact on the economy
   d) Negative impact on the economy

10. Monetary policy is typically implemented by the: a) Ministry of Finance
    b) Central Bank (Correct Answer)
    c) International Monetary Fund
    d) Commercial Banks