#1
Which of the following is a component of government expenditure?
Defense spending
ExplanationGovernment spending on military and national security.
#2
What is the primary objective of expansionary fiscal policy?
To increase aggregate demand
ExplanationTo boost economic activity by increasing government spending or cutting taxes.
#3
What does the term 'fiscal deficit' refer to?
Excess government spending over revenue
ExplanationWhen government spending exceeds its revenue in a given period.
#4
Which of the following is not a type of fiscal policy?
Monetary policy
ExplanationMonetary policy is set by central banks and involves managing the money supply and interest rates.
#5
Which of the following is an example of an automatic stabilizer in fiscal policy?
Unemployment insurance
ExplanationThis program automatically provides financial assistance to individuals who lose their jobs, stabilizing their income during economic downturns.
#6
Which of the following is a tool of contractionary fiscal policy?
Increasing taxes
ExplanationTo decrease consumer spending and control inflation by raising taxes.
#7
What is the crowding-out effect in the context of fiscal policy?
Decrease in private investment due to government borrowing
ExplanationWhen government borrowing leads to higher interest rates, reducing private sector borrowing and investment.
#8
In fiscal policy, what does 'discretionary spending' refer to?
Spending controlled by Congress through annual appropriations
ExplanationFunds that must be appropriated each year by Congress for specific programs or projects.
#9
What is the 'Laffer curve' used to illustrate?
The relationship between tax rates and tax revenue
ExplanationIt shows that increasing tax rates beyond a certain point may lead to a decrease in tax revenue.
#10
What is the term for the total amount of outstanding government debt?
Public debt
ExplanationThe cumulative amount of money owed by the government to creditors.
#11
Which of the following represents an automatic stabilizer in fiscal policy?
Unemployment benefits
ExplanationThese payments automatically increase during economic downturns, providing income support and stimulating demand.
#12
What is the primary concern of Ricardian equivalence theory in fiscal policy?
The long-term effects of government borrowing on future tax burdens
ExplanationIt suggests that individuals adjust their behavior in anticipation of future taxes to offset current government borrowing.
#13
What is the term for the difference between total government revenue and total government expenditure?
Budget surplus
ExplanationWhen government revenue exceeds its spending.
#14
What is the term for a situation in which the government spends more than it receives in revenue?
Budget deficit
ExplanationWhen government expenditures exceed its income in a given period.
#15
In fiscal policy, what does 'fiscal multiplier' refer to?
The impact of fiscal policy changes on economic activity
ExplanationThe multiplier effect measures how changes in fiscal policy influence overall economic output.