Government Budgeting and Fiscal Policy Quiz

Government budgeting aims to reduce unemployment rates through economic policies and allocations.

The capital budget is dedicated to funding long-term investments such as infrastructure projects, capital assets, and research and development.

The OMB plays a central role in the federal budget process by assisting the President in formulating budget proposals and overseeing agency performance.

Interest rates are primarily controlled by central banks as part of monetary policy to regulate the money supply and influence economic activity, distinct from fiscal policy.

Keynesian economics advocates for government intervention in the economy, particularly through fiscal policy, to address market failures, stabilize fluctuations, and promote full employment and economic growth.

Expansionary fiscal policy involves boosting government spending to stimulate economic growth and employment.

A budget deficit occurs when government spending exceeds its revenue, leading to borrowing or other financing methods.

Automatic stabilizers help stabilize the economy by adjusting taxes and transfers based on prevailing economic conditions without the need for explicit government action.

Expansionary fiscal policy typically involves higher public investment to boost economic activity and employment.

Contractionary fiscal policy aims to curb inflation by reducing aggregate demand through measures such as cutting government spending and raising taxes.

Discretionary fiscal policy involves deliberate adjustments in government spending and taxation aimed at achieving specific economic objectives, such as stabilization or growth.

Fiscal policy impacts aggregate demand by altering government spending and taxation levels, thereby influencing consumer and business behavior and overall economic activity.

GDP is a comprehensive measure of a nation's economic activity, reflecting its overall health and performance.

Crowding out occurs when increased government spending reduces private sector investment due to competition for resources.

The fiscal multiplier represents the magnified impact of government spending changes on aggregate demand and is calculated as the reciprocal of the marginal propensity to consume (MPC).

A countercyclical fiscal approach involves increasing government spending during economic downturns to stimulate demand and stabilize the economy.

While both represent shortfalls, fiscal deficit accounts for all government expenditures and revenue, whereas revenue deficit focuses solely on revenue expenditures exceeding revenue.

Pro-cyclical fiscal policy exacerbates economic fluctuations by increasing taxes during periods of economic expansion, potentially dampening growth.

The Laffer curve illustrates the trade-off between tax rates and tax revenue, suggesting that beyond a certain point, increasing tax rates may reduce revenue due to disincentives to work and invest.