Fiscal policy (p203)

Question 1

What does government use to influence the value of money? (and to control inflation)

Name 2 items

Answer 1

1) Taxation
2) Government spending

Question 2

A huge cause of inflation is the increase in demand for goods and services. To control this, the government increase .(a).. . It is very successful in reducing consumer’s …..(b)…..

Answer 2

a) taxes
b) disposable income

Question 3

If consumers have less money to spend, it reduces their …..

Answer 3

demand

Question 4

What does government do to encourage demand?

Answer 4

Reduce the tax rate

Question 5

When government spending ……(a)…….., more money enters the circular flow, which increases demand and …(b)..
To combat inflation, government reduces the amount of money it pumps into circulation.

Answer 5

a) increases
b) inflation