3.1-Fiscal Policy

Question 1

What is fiscal policy?

Answer 1

Fiscal policy is the use of government spending and taxation to influence the economy.

Question 2

True or False: Fiscal policy can be used to manage economic growth.

Answer 2

True

Question 3

What are the two main tools of fiscal policy?

Answer 3

Government spending and taxation.

Question 4

Fill in the blank: Expansionary fiscal policy involves __________ government spending or __________ taxes.

Answer 4

increasing; decreasing

Question 5

What is contractionary fiscal policy?

Answer 5

Contractionary fiscal policy is when the government decreases spending or increases taxes to slow down the economy.

Question 6

Which economic condition typically prompts the use of expansionary fiscal policy?

Answer 6

Recession or economic slowdown.

Question 7

Multiple choice: What is a potential downside of expansionary fiscal policy? A) Increased inflation B) Decreased unemployment C) Higher GDP

Answer 7

A) Increased inflation

Question 8

What is the budget deficit?

Answer 8

The budget deficit occurs when government expenditures exceed its revenues.

Question 9

True or False: A budget surplus occurs when revenues exceed expenditures.

Answer 9

True

Question 10

What is the primary goal of fiscal policy?

Answer 10

To influence economic activity and stabilize the economy.

Question 11

Fill in the blank: The government can borrow money to finance a __________.

Answer 11

budget deficit

Question 12

What is the impact of high government debt on fiscal policy?

Answer 12

High government debt can limit the government’s ability to implement fiscal policy effectively.

Question 13

Multiple choice: Which of the following is NOT a component of fiscal policy? A) Taxation B) Government spending C) Interest rates

Answer 13

C) Interest rates

Question 14

What role does automatic stabilizers play in fiscal policy?

Answer 14

Automatic stabilizers are mechanisms that automatically adjust government spending and tax policies in response to economic conditions.

Question 15

True or False: Fiscal policy can be implemented more quickly than monetary policy.

Answer 15

False

Question 16

What is discretionary fiscal policy?

Answer 16

Discretionary fiscal policy refers to deliberate changes in government spending and taxation in response to economic conditions.

Question 17

Fill in the blank: __________ fiscal policy is used to combat inflation.

Answer 17

Contractionary

Question 18

What is the Keynesian economic theory’s view on fiscal policy?

Answer 18

Keynesian economics advocates for active government intervention through fiscal policy to manage economic cycles.

Question 19

Multiple choice: Which type of tax is typically considered progressive? A) Sales tax B) Income tax C) Property tax

Answer 19

B) Income tax

Question 20

What is the crowding-out effect?

Answer 20

The crowding-out effect occurs when increased government spending leads to a reduction in private sector spending.

Question 21

True or False: Fiscal policy can directly affect aggregate demand.

Answer 21

True

Question 22

What does the term ‘fiscal multiplier’ refer to?

Answer 22

The fiscal multiplier refers to the ratio of change in national income to the change in government spending that causes it.

Question 23

Fill in the blank: __________ is a common measure of the effectiveness of fiscal policy.

Answer 23

Fiscal multiplier

Question 24

What is the purpose of a balanced budget?

Answer 24

A balanced budget aims to ensure that government spending equals its revenues.

Question 25

Multiple choice: Which of the following is a potential advantage of fiscal policy? A) Flexibility B) Speed C) Predictability

Answer 25

A) Flexibility

Question 26

What is the relationship between fiscal policy and inflation?

Answer 26

Expansionary fiscal policy can lead to higher inflation if the economy is near full capacity.

Question 27

True or False: Fiscal policy can be used to reduce unemployment.

Answer 27

True

Question 28

What is the role of government transfers in fiscal policy?

Answer 28

Government transfers provide financial assistance to individuals and can help stimulate demand.

Question 29

Fill in the blank: __________ policies are often used to stabilize the economy during economic fluctuations.

Answer 29

Counter-cyclical

Question 30

What is the main objective of counter-cyclical fiscal policy?

Answer 30

To counteract economic fluctuations by increasing spending during downturns and reducing spending during booms.

Question 31

Multiple choice: Which of the following is a limitation of fiscal policy? A) Time lags B) Immediate impact C) Clear objectives

Answer 31

A) Time lags

Question 32

What is the impact of fiscal policy on income distribution?

Answer 32

Fiscal policy can affect income distribution through taxation and government spending programs.

Question 33

True or False: Fiscal policy is solely the responsibility of the central bank.

Answer 33

False

Question 34

What is the significance of the Laffer Curve in fiscal policy?

Answer 34

The Laffer Curve illustrates the relationship between tax rates and tax revenue, suggesting that higher rates can lead to lower revenue beyond a certain point.

Question 35

Fill in the blank: __________ taxes are taxes that are based on the ability to pay.

Answer 35

Progressive

Question 36

What is the difference between fiscal policy and monetary policy?

Answer 36

Fiscal policy involves government spending and taxation, while monetary policy involves controlling the money supply and interest rates.

Question 37

Multiple choice: Which of the following is a primary effect of contractionary fiscal policy? A) Increased inflation B) Higher interest rates C) Increased government spending

Answer 37

B) Higher interest rates