Using Fiscal Policy, How Can the Government Stimulate the Economy

question 33

Multiple Choice

Using fiscal policy, how can the government stimulate the economy?

• A) decrease spending and cut taxes
• B) decrease spending and raise taxes
• C) increase spending and cut taxes
• D) increase spending and raise taxes

Comprehend the role of accrual accounting earnings in predicting future cash flows.

Appreciate the importance of risk evaluation in determining discount rates for future cash flows.

Understand the creation and use of pro forma financial statements in business analysis.

Recognize the relevance of earnings numbers in estimating sustainable long-term cash flows.

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Definitions:

Excess Reserves

The reserves held by banks over and above the minimum required by the central bank, available for lending or investment.

Money Supply

The total financial resources existing in an economy at a certain time.

Open Market Operations

These are financial activities where central banks buy or sell government securities in the open market to control the money supply and influence interest rates.

Required Reserve Ratio

The fraction of deposits that a bank is mandated by regulations to hold in reserve and not loan out.