Objective 1

Question 1

Expansionary fiscal policy

Answer 1

Policies that reduce tax rates and/ or increase government spending on goods and services designed to stimulate consumption and investment. Intended to speed recovery from a recession.

Question 2

Contractionary fiscal policy

Answer 2

Policies that increase tax rates and/ or reduce government spending on goods and services designed to curb consumption and investment. Intended to slow expansion and reduce inflation.

Question 3

Marginal tax rate

Answer 3

The rate of tax paid on the last dollar earned.

Question 4

Marginal Propensity to Consume (MPC)

Answer 4

The additional rate of spending associated with next dollar increase in disposable income.

Question 5

Spending multiplier

Answer 5

The number by which a government spending must be multiplied to achieve the intended change in real GDP output.

Question 6

Tax multiplier

Answer 6

The number by which a tax change must be multiplied to achieve the intended change in real GDP output.