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Fiscal and Monetary Policy Quiz

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Questions and Answers

What is the primary goal of fiscal policy?

Regulating interest rates

Managing external trade balances

Stabilizing the economy through government intervention (correct)

Controlling inflation

Which action is associated with monetary policy during a recession?

Implementing savings measures

Raising expenditure on public projects

Decreasing interest rates to stimulate investments (correct)

Increasing taxes to curb spending

Which of the following is NOT a component of the stabilization measures?

Stability and Growth Acts of 1967

Inflation control (correct)

Reserves for crisis times

High employment

What type of indicator is gross domestic product (GDP) considered in the context of the business cycle?

Current indicator Signup and view all the answers

Which of the following measures is included in the components of stabilization measures?

Price stability Signup and view all the answers

What is a primary reason businesses refrain from investing during a period of unemployment equilibrium?

Poor future expectations inhibit investment. Signup and view all the answers

How do extremely low interest rates contribute to a liquidity trap?

They lead to money being hoarded rather than invested. Signup and view all the answers

What aspect of the labor market is highlighted by wage rigidity during unemployment?

Wages do not decrease effectively, leading to stagnation. Signup and view all the answers

What is a direct consequence of low demand in an economy characterized by unemployment equilibrium?

Decline in production and employment. Signup and view all the answers

What best describes the overall state of an economy experiencing unemployment equilibrium?

Stagnation with high unemployment and low demand. Signup and view all the answers