#1
Which of the following is a component of the government budget?
Government expenditure
ExplanationPart of the government's financial plan outlining spending.
#2
What is the primary objective of fiscal responsibility?
To reduce government debt
ExplanationMain goal is decreasing the total amount owed by the government.
#3
What does a balanced budget imply?
Government spending is equal to government revenue
ExplanationExpenses match income, resulting in no deficit or surplus.
#4
What is the 'fiscal deficit' in a government budget?
The excess of government expenditure over government revenue
ExplanationOccurs when spending surpasses income.
#5
What is the 'debt-to-GDP ratio' used for in government budgeting?
To measure the affordability of government debt
ExplanationIndicator gauging the manageability of national debt.
#6
What is a 'surplus budget'?
When government revenue exceeds government expenditure
ExplanationIncome surpasses spending, resulting in a financial surplus.
#7
How does a government finance its deficit?
Through borrowing from the central bank
ExplanationCovered by loans from the central financial institution.
#8
What is the role of a 'budget deficit' in fiscal policy?
To stabilize economic growth
ExplanationUsed to steady economic expansion or contraction.
#9
What is the primary goal of an expansionary fiscal policy?
To stimulate economic growth
ExplanationAim is to boost economic activity and prosperity.
#10
What is the purpose of using fiscal policy in government budgeting?
To influence economic activity
ExplanationAims to shape economic behavior through financial measures.
#11
What is the difference between fiscal policy and monetary policy?
Fiscal policy involves government taxation and spending, while monetary policy involves regulating money supply and interest rates.
ExplanationFiscal focuses on government's purse, while monetary centers on currency circulation.
#12
What are 'automatic stabilizers' in fiscal policy?
Policies that automatically increase government spending during economic downturns
ExplanationMechanisms that trigger increased government spending in economic slumps.
#13
How does 'crowding out' affect private investment?
It discourages private investment by raising interest rates.
ExplanationDampens private investment due to higher borrowing costs.
#14
How does 'discretionary fiscal policy' differ from 'automatic stabilizers'?
Discretionary fiscal policy is government intervention in response to economic conditions, while automatic stabilizers are built-in features of the tax and transfer systems.
ExplanationOne is government's active response, the other operates automatically in the tax-transfer framework.
#15
What is the 'Laffer curve' in the context of fiscal policy?
A curve illustrating the relationship between tax rates and government revenue
ExplanationGraphical representation of tax rate optimization for maximizing government income.
#16
What is the main drawback of a contractionary fiscal policy during a recession?
It may exacerbate the recession
ExplanationRuns the risk of worsening economic downturns.