Fiscal Policy and Public Finance Quiz

Taxation is a means by which governments can adjust revenue intake to influence economic activity.

Expansionary fiscal policy aims to boost economic growth by increasing government spending and cutting taxes.

Fiscal policy aims to stabilize the economy and promote growth while minimizing unemployment through strategic government interventions.

Expansionary fiscal policy involves boosting aggregate demand through increased government spending or tax cuts to stimulate economic growth.

Contractionary fiscal policy aims to curb inflation and prevent overheating of the economy by reducing government spending or increasing taxes.

Government spending is a key component of fiscal policy used to influence aggregate demand and economic activity.

Contractionary fiscal policy aims to reduce inflationary pressures by decreasing government spending and increasing taxes.

Fiscal policy pertains to government revenue and expenditure, while monetary policy involves the regulation of money supply and interest rates by central banks.

Fiscal deficit indicates government borrowing, while fiscal surplus implies excess revenue that can be used for debt reduction or public spending.

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

Progressive taxes impose a higher rate on higher incomes, aiming for fairness, whereas regressive taxes impose a higher burden on lower incomes, potentially exacerbating income inequality.

Interest rates are controlled by monetary policy, not fiscal policy, and are used by central banks to influence economic activity.

The Laffer curve illustrates the point where increasing tax rates becomes counterproductive for generating government revenue due to reduced economic activity.

Automatic stabilizers, like progressive tax systems and unemployment benefits, help stabilize the economy by providing automatic fiscal stimulus during downturns and fiscal restraint during expansions.

Discretionary fiscal policy involves deliberate changes in government spending and taxation to influence economic activity, such as implementing tax cuts to encourage spending.

The budget multiplier reflects how changes in government spending can lead to a multiplied impact on overall economic activity, affecting GDP.

Ricardian equivalence suggests that consumers anticipate future tax burdens and adjust their behavior accordingly, offsetting the effects of current fiscal policies.