#1
What is fiscal policy?
Government's use of taxation and spending to influence the economy
ExplanationGovernment's economic influence through taxation and spending.
#2
Which of the following is a tool of expansionary fiscal policy?
Decreasing taxes
ExplanationExpansionary fiscal policy tool: Reduce taxes to boost economic activity.
#3
Which of the following is an example of an automatic stabilizer?
Unemployment benefits
ExplanationAutomatic stabilizer example: Unemployment benefits.
#4
What is the role of the government in fiscal policy implementation?
To adjust government spending and taxation to achieve economic goals.
ExplanationGovernment role in fiscal policy: Adjust spending and taxes for economic goals.
#5
Which of the following is an example of expansionary fiscal policy?
Increasing government spending and decreasing taxes.
ExplanationExpansionary fiscal policy example: Raise spending, cut taxes.
#6
What is the crowding-out effect in fiscal policy?
Increased government borrowing leads to higher interest rates and reduced private investment
ExplanationCrowding-out effect: Govt. borrowing raises rates, hampers private investment.
#7
Which fiscal policy approach is more likely to be used during times of high inflation?
Contractionary fiscal policy
ExplanationHigh inflation remedy: Contractionary fiscal policy.
#8
What is the fiscal multiplier?
The ratio of changes in national income to changes in government spending.
ExplanationFiscal multiplier: Ratio of national income change to govt. spending change.
#9
What is the Laffer curve in fiscal policy?
A curve showing the relationship between tax rates and tax revenue.
ExplanationLaffer curve: Illustrates tax rates' impact on tax revenue.
#10
What is the primary goal of contractionary fiscal policy?
To reduce inflation and cool down an overheated economy.
ExplanationContractionary fiscal policy goal: Curb inflation and cool economy.
#11
What is the Ricardian equivalence proposition in fiscal policy?
Government spending increases will be offset by increases in private savings
ExplanationRicardian equivalence: Govt. spending hikes offset by private savings rise.
#12
In fiscal policy, what is meant by the term 'structural deficit'?
A deficit that would exist even if the economy were operating at full capacity.
ExplanationStructural deficit: Deficit present at full-capacity economy.
#13
What is the significance of the balanced budget multiplier?
It demonstrates how changes in government spending and taxation affect aggregate demand.
ExplanationBalanced budget multiplier significance: Shows impact on aggregate demand.
#14
What is the primary concern associated with a high fiscal deficit?
Reduced economic stability
ExplanationHigh fiscal deficit concern: Reduced economic stability.