Practice Questions
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Which of the following economic indicators is most likely to be affected by contractionary monetary policy?
Contractionary monetary policy means the government is trying to reduce the amount of money in the economy. Other options are incorrect because Some m...
Which of the following monetary policy tools is primarily used to decrease liquidity in the economy during a contractionary monetary policy?
When the central bank raises the discount rate, it costs banks more to borrow money. Other options are incorrect because Some might think lowering the...
How does contractionary monetary policy influence aggregate demand to help prevent a recession?
This policy raises interest rates. Other options are incorrect because Some might think lowering taxes gives people more money to spend; It's easy to ...
How does a central bank typically implement contractionary monetary policy through government securities?
When a central bank sells government securities, it takes money out of the economy. Other options are incorrect because Some might think buying securi...
How does contractionary monetary policy typically impact unemployment rates in an economy experiencing high inflation?
When the government uses contractionary monetary policy, it reduces the amount of money available. Other options are incorrect because Some might thin...
What is the primary goal of contractionary monetary policy?
The main aim is to lower inflation. Other options are incorrect because Some might think this policy increases money supply; People may believe this p...
What is the primary effect of contractionary monetary policy on interest rates?
When the government uses contractionary monetary policy, it reduces the amount of money in the economy. Other options are incorrect because Some might...
What is the primary goal of contractionary monetary policy?
The main aim of contractionary monetary policy is to lower inflation. Other options are incorrect because Some might think this policy aims to raise i...
Arrange the following steps of contractionary monetary policy in the correct order: A) Central bank raises interest rates, B) Borrowing costs increase for consumers and businesses, C) Money supply decreases, D) Inflation rates begin to stabilize.
First, the central bank raises interest rates. Other options are incorrect because This option suggests that the money supply decreases before interes...
How does contractionary monetary policy primarily affect consumer spending in an inflationary environment?
When the government uses contractionary monetary policy, it raises interest rates. Other options are incorrect because Some might think that higher in...
Which of the following scenarios best illustrates the application of contractionary monetary policy?
When the central bank raises interest rates, it makes borrowing more expensive. Other options are incorrect because This option suggests lowering inte...
In a contractionary monetary policy, the central bank aims to decrease the money supply and raise interest rates to combat an inflationary gap. The primary goal of this policy is to _____ the price level in the economy.
The goal is to lower prices. Other options are incorrect because Some might think raising interest means higher prices; Stabilizing sounds good, but t...
If a central bank implements contractionary monetary policy and raises interest rates, what is the primary effect this action aims to achieve in the economy?
When interest rates go up, borrowing money becomes more expensive. Other options are incorrect because Some might think higher interest rates encourag...
Contractionary Monetary Policy : Decrease in Money Supply :: Expansionary Monetary Policy : ?
Expansionary Monetary Policy means increasing the money supply. Other options are incorrect because Some might think lowering interest rates is the sa...
How does contractionary monetary policy primarily affect consumer behavior in an inflationary environment?
When the central bank raises interest rates, borrowing money becomes more expensive. Other options are incorrect because This option suggests that bor...
A country is experiencing rapid inflation, with prices rising significantly over the past few months. The central bank decides to implement a contractionary monetary policy. Which of the following outcomes is the most likely result of this policy in the short term?
When the central bank uses contractionary policy, it raises interest rates. Other options are incorrect because Some might think lower interest rates ...
Which of the following are potential effects of implementing contractionary monetary policy? Select all that apply.
Contractionary monetary policy aims to reduce money supply. Other options are incorrect because Some might think this policy lowers inflation; People ...
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