#1
Which of the following is an example of fiscal policy tools?
Taxation
ExplanationTaxation is a fiscal policy tool.
#2
What is the economic multiplier effect?
The phenomenon where an initial change in spending leads to a larger change in overall economic activity.
ExplanationInitial spending change causes larger economic activity change.
#3
How does an expansionary fiscal policy affect aggregate demand?
Increases aggregate demand
ExplanationExpansionary fiscal policy boosts aggregate demand.
#4
What is the primary goal of contractionary fiscal policy?
To control inflation and cool down an overheated economy
ExplanationContractionary fiscal policy aims to control inflation, cool overheated economy.
#5
Which of the following is a counter-cyclical fiscal policy measure?
Decreasing taxes during an economic downturn
ExplanationTax cuts during downturn are counter-cyclical fiscal measure.
#6
What does the term 'automatic stabilizers' refer to in fiscal policy?
Government programs and policies that automatically offset economic fluctuations
ExplanationAutomatic stabilizers offset economic fluctuations.
#7
What is the crowding-out effect in the context of fiscal policy?
Increased government spending leading to higher interest rates and reducing private investment.
ExplanationGovernment spending increase raises interest rates, lowers private investment.
#8
What is the formula for the simple spending multiplier?
1 / (1 - MPC)
ExplanationSimple spending multiplier formula: 1 / (1 - MPC)
#9
In fiscal policy, what is the role of the government's budget surplus or deficit?
A surplus indicates contractionary fiscal policy, while a deficit indicates expansionary fiscal policy.
ExplanationSurplus signifies contractionary, deficit signifies expansionary fiscal policy.
#10
What is the significance of the Ricardian equivalence proposition in fiscal policy?
It suggests that individuals do not adjust their spending behavior based on government fiscal policy changes.
ExplanationRicardian equivalence: No spending behavior adjustment to fiscal policy changes.
#11
How does the money multiplier work in the context of fiscal policy?
It represents the change in money supply resulting from a change in government expenditures.
ExplanationMoney multiplier: Change in money supply due to government spending change.