#1
Which of the following is an example of expansionary fiscal policy?
Increasing government spending
ExplanationExpansionary fiscal policy involves increasing government spending to stimulate economic growth.
#2
What does a budget deficit indicate?
Government spending exceeds government revenue
ExplanationA budget deficit occurs when a government spends more money than it receives in revenue.
#3
Which of the following is NOT a component of government budget?
Deficit
ExplanationThe deficit is a result of government budgeting and not a component of the budget itself.
#4
What is the term used to describe the total amount of outstanding government debt?
National debt
ExplanationThe national debt refers to the total amount of money owed by a government due to past borrowing.
#5
What is the term for a situation where government spending exceeds government revenue?
Budget deficit
ExplanationA budget deficit occurs when government spending exceeds government revenue over a specific period.
#6
Which of the following represents contractionary fiscal policy?
Increasing taxes
ExplanationContractionary fiscal policy involves increasing taxes to reduce aggregate demand and control inflation.
#7
What is the primary tool used by the government to implement fiscal policy?
Government spending
ExplanationGovernment spending is a primary tool used by governments to influence economic conditions through fiscal policy.
#8
What is the purpose of a budget surplus?
To reduce government debt
ExplanationA budget surplus occurs when government revenue exceeds spending, allowing the government to pay off existing debt.
#9
What is the term used to describe a situation where government revenue equals government spending?
Balanced budget
ExplanationA balanced budget occurs when government revenue equals government spending, resulting in a net-zero budgetary position.
#10
During a recession, which fiscal policy action is likely to be most effective in stimulating economic activity?
Increasing government spending
ExplanationIncreasing government spending during a recession can stimulate economic activity by boosting demand.
#11
Which of the following is true regarding automatic stabilizers?
They automatically counteract economic fluctuations
ExplanationAutomatic stabilizers are mechanisms that automatically adjust to economic fluctuations, helping to stabilize the economy without direct intervention.
#12
What is the crowding out effect in fiscal policy?
Private sector borrowing decreases due to increased government borrowing
ExplanationThe crowding out effect occurs when increased government borrowing leads to higher interest rates, reducing private sector borrowing and investment.