#1
What is the primary goal of fiscal policy?
Minimize unemployment
ExplanationFiscal policy aims to reduce unemployment through government spending and taxation.
#2
Which economic indicator is often considered a lagging indicator in the business cycle?
Unemployment Rate
ExplanationUnemployment rate tends to lag behind other indicators, reflecting economic changes after they have occurred.
#3
What is the difference between fiscal policy and monetary policy?
Fiscal policy involves government spending and taxation, while monetary policy involves control over the money supply and interest rates.
ExplanationFiscal policy is implemented through government spending and taxation decisions, while monetary policy is set by the central bank to control money supply and interest rates.
#4
In the context of fiscal policy, what is the purpose of an automatic stabilizer?
To automatically adjust to economic fluctuations without explicit government action
ExplanationAutomatic stabilizers are designed to kick in during economic downturns or upturns without requiring new legislative action.
#5
What is the primary purpose of a trade deficit in the context of international economics?
To finance the purchase of imported goods and services
ExplanationTrade deficits occur when a country imports more goods and services than it exports, relying on borrowing or selling assets to finance the imbalance.
#6
Which economic concept refers to the total value of all goods and services produced in a country within a specific time period?
Gross Domestic Product (GDP)
ExplanationGDP measures the economic output of a country over a given period.
#7
What is the Phillips Curve used to illustrate in economic theory?
The relationship between inflation and unemployment
ExplanationThe Phillips Curve depicts the trade-off between inflation and unemployment rates.
#8
What is the difference between monetary policy and fiscal policy?
Monetary policy is controlled by the central bank, while fiscal policy is controlled by the government.
ExplanationMonetary policy deals with controlling the money supply and interest rates, whereas fiscal policy involves government spending and taxation.
#9
What does the term 'crowding out' refer to in the context of fiscal policy?
An increase in interest rates due to excessive government borrowing.
ExplanationCrowding out occurs when government borrowing increases interest rates, reducing private sector borrowing and investment.
#10
Which of the following is an example of expansionary fiscal policy?
Increasing government spending to stimulate the economy
ExplanationExpansionary fiscal policy involves increasing government spending or reducing taxes to boost aggregate demand and stimulate economic growth.
#11
In economic terms, what does the term 'elasticity' measure?
The responsiveness of quantity demanded to a change in price.
ExplanationElasticity measures how sensitive quantity demanded or supplied is to changes in price.
#12
In the context of fiscal policy, what does the term 'automatic stabilizers' refer to?
Programs that automatically adjust to economic fluctuations without explicit government action
ExplanationAutomatic stabilizers are policies or programs that kick in during economic downturns or upturns without the need for new legislation.
#13
What is the Laffer Curve used to depict in economics?
The relationship between tax rates and government revenue
ExplanationThe Laffer Curve illustrates the relationship between tax rates and tax revenue, showing that at a certain point, higher tax rates may reduce government revenue.
#14
In the IS-LM model, what does the LM curve represent?
Equilibrium in the money market
ExplanationThe LM curve shows combinations of interest rates and levels of income where the money market is in equilibrium.
#15
According to the Ricardian equivalence theorem, how do individuals respond to government deficits?
Increase saving in anticipation of future tax increases.
ExplanationRicardian equivalence suggests that individuals save more when government deficits rise, anticipating future tax increases to pay off the debt.
#16
Which fiscal policy tool involves adjusting tax rates based on an individual's income level?
Progressive taxation
ExplanationProgressive taxation involves higher tax rates for higher income earners, aiming to redistribute wealth and reduce income inequality.
#17
What is the primary objective of counter-cyclical fiscal policy?
Enhancing economic growth during periods of recession
ExplanationCounter-cyclical fiscal policy aims to mitigate economic downturns by boosting demand during recessions and restraining it during expansions.