Fiscal Policy and Government Expenditure Quiz

Government expenditure is a key tool of fiscal policy, involving the government's spending on goods and services to influence economic conditions.

Expansionary fiscal policy involves boosting the economy by increasing government spending, aiming to stimulate economic growth.

The primary goal of fiscal policy is to attain full employment and foster economic growth through government actions on taxation and spending.

Contractionary fiscal policy involves reducing government spending or increasing taxes to cool down an overheated economy and curb inflation.

Discretionary fiscal policy involves deliberate changes in government spending or taxation to achieve specific economic goals, such as tax cuts to stimulate economic activity.

To address a recession, implementing expansionary fiscal policy, such as increasing government spending or reducing taxes, can help boost economic activity.

Transfer payments, such as social security and welfare, are not direct purchases of goods or services and therefore are not considered part of government expenditure.

Mandatory spending refers to government expenditures that are predetermined by laws and do not require annual approval from Congress.

A budget deficit occurs when government spending surpasses its revenue, leading to a shortfall that often requires borrowing.

Automatic stabilizers, like unemployment benefits, automatically adjust during economic fluctuations, providing support during recessions and reducing stimulus during booms.

Devaluation is the deliberate reduction in the value of a country's currency to enhance the competitiveness of its exports.

Fiscal policy encompasses the government's intentional adjustments to taxation and spending to influence the economy.

Keynesian economics is the economic theory advocating for government intervention, especially through increased spending, to address economic downturns and stimulate growth.

The multiplier effect is the economic concept that changes in government spending or taxation can have a magnified impact on overall economic activity.

Crowding out occurs when increased government borrowing leads to higher interest rates, reducing private sector investment.

A large budget deficit can lead to concerns about higher interest rates as the government may need to borrow more, potentially crowding out private investment.

Fiscal policy is a strategy that aims to achieve economic stability by adjusting government spending and taxation levels.