CFA Level I:Economics - Monetary and fiscal policy 学习要点和习题精选 unexpected, creation, central, process, policy

Wendy01

Learning Outcome Statements (LOS)
  

a   Compare monetary and fiscal policy;
  

b   Describe functions and definitions of money;
  

c   Explain the money creation process;
  

d  Describe theories of the demand for and supply of money;   
  

e  Describe the Fisher effect;   
        

f   Describe the roles and objectives of central banks;
  

g  Contrast the costs of expected and unexpected;
  

h  Describe the implementation of monetary policy;
  

i   Describe the qualities of effective central banks;
  

j   Explain the relationships between monetary policy and economic growth, inflation, interest, and exchange rates;
  

k   Contrast the use of inflation, interest rate, and exchange rate targeting by central banks;
  

l   Determine whether a monetary policy is expansionary or contractionary;
  

m   Describe the limitations of monetary policy;
  

n   Describe the roles and objectives of fiscal policy;
  

o   Describe the tools of fiscal policy, including their advantages and disadvantages;
  

p   Describe the arguments for and against being concerned with the size of a fiscal deficit (relative to GDP);
  

q   Explain the implementation of fiscal policy and the difficulties of implementation;
  

r   Determine whether a fiscal policy is expansionary or contractionary;
  

s   Explain the interaction of monetary and fiscal policy.

Wendy01

10.  Assume the Fed has decided to lower interest rates in the economy. To carry out this policy, the Fed will most likely instruct the open market trading desk to:

A.    Sell securities

B.     Buy securities

C.     Increase required reserve ratios

  
   
Ans: B; the method Fed used to lower interest rate is expending monetary policy. So here only buy securities in open market is a expending monetary policy.

Wendy01

9.      Which of the following multipliers is least likely to be part of fiscal policy?

A.    Money multiplier

B.     Balanced budget multiplier

C.     Government expenditure multiplier

  
   
Ans: A; money multiplier is known as the amount of money that the banking system creates through the practice of fractional reserve banking is a function of 1 divided by the reserve requirement, which is monetary policy.

B is incorrect; the balanced budget multiplier equals to 1, which means when government increase G by the same amount as it raises tax, the aggregate demand will increase by that amount. It is fiscal policy.

C is incorrect; the government expenditure multiplier means when government increase the spending, the ratio of the amount of aggregate demand increasing to the increase of spending. It is fiscal policy.

Wendy01

8.      Which of the following actions on the part of a central band is most consistent with increasing the quantity of money?

A.  Selling securities on the open market

B.  Increasing the required reserve ratios

C.  Purchasing securities on the open market

  
   
Ans: C; purchasing securities on the open market will increasing the reserves in banks, which will increase the amount of money for investing and consumption.

A is incorrect; selling securities on the open market will decrease the banks’ reserve, and decrease the amount of money.

B is incorrect; increasing the require reserve ratio will decrease banks’ lending and decrease investing and consumption.

Wendy01

7. In an economy, consumption is 70% of pre-tax income and the average tax rate is 25% of total income. If planned government expenditures are expected to increase by $1.25 billion, the increase in total incomes and spending in billions, is closest to: A. $1.3 B. $2.6 C. $4.2

Ans: C; the fiscal multiplier is 1/ [1-c (1-t)]. Here, c is marginal propensity to consumer, which is the ratio of consumption to after-tax income, so it’s. And t is tax rate, which is 25%. So the fiscal multiply in this problem is. Then the increase of total incomes and spending is

Wendy01

6.      An expansionary fiscal policy is least likely to include an increase in:

A.  Tax rates

B.  Government borrowing

C.  Government expenditures

  
   
Ans: A; increase the tax rates will decrease the amount of money that could be consumed and invested, so this fiscal policy will contract the economy.

Wendy01

5.      If a government increases its spending on domestically produced goods by an amount that is financed by the same increase in taxes, the aggregate demand will most likely:

A.    increase

B.     decrease

C.     remain unchanged      

  
   
Ans: A; the balanced budget multiplier equals to 1, which means when government increase G by the same amount as it raises tax, the aggregate demand will increase by that amount.

Wendy01

4.      In an effort to influence the economy, a central bank conducted open market activities by selling government bonds. This implies that the central banks is most likely attempting to:

A.  Contract the economy by reducing bank reserves

B.  Expand the economy through a lower policy interest rate

C.  Contract the economy through a lower policy interest rate

  
   
Ans: A; selling government bonds will reduce the reserve of banks, which will decrease the quantity of money and contract the economy.

Wendy01

3.      Which of the following actions on the part of central bank is consistent with increasing the quantity of money?

A.    Increasing reserve requirements

B.     Selling securities on the open market

C.     Purchasing securities on the open market

  
   
Ans: C;  purchasing securities on the open market increases the reserves of private sector banks on the asset side of their balance sheets. If banks then use these surplus reserves by increasing lending to corporations and households, broad money growth expands.

A is incorrect; increasing reserve requirements require banks hold more money and decrease lend, so the quantity of money decreases.

B is incorrect; selling securities on the open market correct money from banks, which decreases the amount of lending and decrease the quantity of money.

Wendy01

2.      The primary monetary policy goal of  most major central banks is best characterized as:   

A.    Containing inflation

B.     Stimulating economic growth

C.     Maintaining low interest rates

  
    Ans: A; central bank fulfill a variety of important roles, but there is one overarching objective that most seem to acknowledge explicitly, and that is the objective of maintaining price stability, which is the same as containing inflation.