#1
Which of the following is a tool of fiscal policy?
Government spending
ExplanationFiscal policy tool involving government expenditure.
#2
What is the primary goal of contractionary fiscal policy?
Stabilize prices
ExplanationContractionary fiscal policy aims to control inflation and stabilize prices.
#3
Which factor is NOT considered when evaluating the effectiveness of fiscal policy?
Political considerations
ExplanationPolitical considerations are not typically part of economic evaluations of fiscal policy.
#4
In fiscal policy, what does the term 'discretionary' refer to?
Planned and deliberate policy actions
ExplanationDiscretionary fiscal policy involves intentional government actions.
#5
Which economic indicator is commonly used to assess the overall health of an economy?
Gross Domestic Product (GDP)
ExplanationGDP is a key indicator of economic health and performance.
#6
Which term refers to the situation where government spending exceeds revenue, leading to a budget deficit?
Fiscal deficit
ExplanationFiscal deficit occurs when government spending surpasses revenue, resulting in a deficit.
#7
What is the primary objective of expansionary fiscal policy?
Stimulate economic growth
ExplanationExpansionary fiscal policy aims to boost economic activity.
#8
Which of the following is an automatic stabilizer in fiscal policy?
Unemployment benefits
ExplanationUnemployment benefits act as automatic stabilizers, offsetting economic downturns.
#9
What is the Laffer Curve used to illustrate in fiscal policy?
Tax revenue and tax rates
ExplanationLaffer Curve illustrates the relationship between tax rates and tax revenue.
#10
Which fiscal policy tool involves changing the money supply to influence economic activity?
Monetary policy
ExplanationMonetary policy involves controlling money supply and interest rates.
#11
Which fiscal policy approach focuses on reducing tax rates to stimulate economic growth?
Supply-side economics
ExplanationSupply-side economics aims to boost economic growth by reducing tax rates.
#12
In the context of fiscal policy, what does the term 'multiplier effect' refer to?
The impact of government spending on the overall economy
ExplanationMultiplier effect refers to the amplification of economic impact from government spending.
#13
Which fiscal policy tool is used to encourage specific industries or activities?
Supply-side policy
ExplanationSupply-side policy aims to promote specific sectors or activities within the economy.
#14
What is the crowding-out effect in economics?
Reduced private sector borrowing
ExplanationCrowding-out effect leads to reduced borrowing by the private sector due to increased government borrowing.
#15
During a recession, which fiscal policy action is most suitable?
Implement expansionary policy
ExplanationExpansionary policy helps to stimulate demand and counter recessionary trends.
#16
Which economic indicator is often used to determine the effectiveness of fiscal policy?
Gross Domestic Product (GDP)
ExplanationGDP is used to measure the overall economic performance.
#17
In fiscal policy, what does the term 'automatic stabilizer' refer to?
Built-in features that offset economic fluctuations
ExplanationAutomatic stabilizers are features that mitigate economic fluctuations without explicit government action.
#18
What is the primary drawback of using discretionary fiscal policy to stabilize the economy?
It can lead to unpredictable outcomes
ExplanationDiscretionary fiscal policy may have uncertain effects on the economy.
#19
What is the main purpose of countercyclical fiscal policy?
To stabilize the economy against cyclical changes
ExplanationCountercyclical fiscal policy aims to mitigate economic fluctuations.
#20
What is the main difference between fiscal policy and monetary policy?
Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in the money supply and interest rates
ExplanationFiscal policy involves government spending and taxation, while monetary policy controls money supply and interest rates.