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Example Questions
Example Question #1 : How To Find Fiscal Policy
Which of the following is not a tool used by the Federal Reserve?
Buying and selling bonds via open market operations
Adjusting the discount rate
All of these tools are used by the Federal Reserve
Increasing aggregate demand through fiscal policy
Adjusting the reserve requirements for banks
Increasing aggregate demand through fiscal policy
Fiscal policy is the use of government spending to influence the economy. As such, fiscal policy is outside of the scope of the Federal Reserve's powers - fiscal policy can only be initiated by Congress.
Example Question #2 : How To Find Fiscal Policy
Which of the following is the most effective fiscal policy if potential GDP exceeds current GDP?
Government spending increases.
The Federal Reserve sells US Treasury bonds.
The Federal Reserve buys US Treasury bonds.
The tax rate increases.
Government spending increases.
If potential GDP exceeds current GDP, the country is in a recessionary gap. The fiscal policies that are effective in closing a recessionary gap are to increase government spending or to decrease (not increase) taxes.
Note that Federal Reserve operations are monetary, not fiscal, policies.
All AP Macroeconomics Resources
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