#1
What is the primary goal of fiscal policy?
Stabilize the economy
ExplanationFiscal policy aims to stabilize economic fluctuations.
#2
In fiscal policy, what does the term 'budget surplus' indicate?
Government revenue exceeds government spending
ExplanationA budget surplus occurs when government revenue exceeds government spending.
#3
What is the impact of a contractionary fiscal policy on the economy?
Slows down economic activity
ExplanationContractionary fiscal policy involves decreasing government spending or increasing taxes, which slows down economic activity to control inflation or stabilize the economy.
#4
How does a tax rebate function in fiscal policy?
Reduces taxes for certain individuals to stimulate spending
ExplanationA tax rebate involves refunding a portion of taxes paid, often used to stimulate consumer spending during economic downturns.
#5
What is the purpose of a 'tax rebate' in fiscal policy?
To reduce taxes for certain individuals to stimulate spending
ExplanationTax rebates involve returning a portion of taxes paid to certain individuals, often used to stimulate consumer spending during economic downturns.
#6
Which of the following is an example of an expansionary fiscal policy tool?
Increasing government spending
ExplanationExpansionary fiscal policy involves boosting government spending to stimulate economic growth.
#7
What is the Laffer curve used to illustrate in taxation theory?
Relationship between tax rates and tax revenue
ExplanationThe Laffer curve demonstrates the relationship between tax rates and the amount of tax revenue collected by the government.
#8
What is the crowding-out effect in fiscal policy?
Increased government borrowing leading to reduced private investment
ExplanationCrowding out occurs when increased government borrowing reduces available funds for private investment.
#9
Which of the following is a feature of a regressive tax?
Lower-income individuals pay a higher percentage of their income in taxes
ExplanationRegressive taxes take a larger percentage of income from low-income earners compared to high-income earners.
#10
What is the 'tax multiplier' in fiscal policy?
The impact of changes in taxes on aggregate demand
ExplanationThe tax multiplier measures how changes in taxes affect aggregate demand and economic output.
#11
Which of the following is an example of a progressive tax system?
Income tax with higher rates for higher income levels
ExplanationA progressive tax system imposes higher tax rates on higher levels of income.
#12
What is the difference between fiscal policy and monetary policy?
Fiscal policy deals with government spending and taxation, while monetary policy deals with the money supply and interest rates
ExplanationFiscal policy involves government actions related to spending and taxation, whereas monetary policy involves central bank actions related to the money supply and interest rates.
#13
What is the purpose of a sin tax in fiscal policy?
To discourage undesirable behavior
ExplanationSin taxes are imposed on goods or activities considered socially undesirable to discourage their consumption or participation.
#14
In the context of taxation, what does the term 'tax incidence' refer to?
The distribution of tax burden between buyers and sellers
ExplanationTax incidence refers to how the burden of a tax is distributed between consumers and producers.
#15
What is the difference between a proportional tax and a progressive tax?
Proportional tax has a flat rate, while progressive tax rates increase with income
ExplanationProportional taxes impose the same tax rate on all taxpayers, while progressive taxes impose higher rates on higher-income earners.
#16
What is the purpose of an automatic stabilizer in fiscal policy?
To automatically adjust to stabilize the economy during economic fluctuations
ExplanationAutomatic stabilizers are policy features that automatically adjust government spending and taxes in response to economic conditions to stabilize the economy.
#17
What is the purpose of a countercyclical fiscal policy?
To counteract the effects of economic cycles
ExplanationCountercyclical fiscal policy aims to offset the fluctuations of the business cycle by stimulating or restraining the economy.
#18
In fiscal policy, what is the difference between discretionary and automatic fiscal policy?
Discretionary policy is government-initiated, while automatic policy adjusts automatically with economic conditions
ExplanationDiscretionary fiscal policy involves deliberate changes in government spending and taxation by policymakers, whereas automatic fiscal policy automatically adjusts based on economic conditions without explicit government action.
#19
What is the impact of a budget deficit on government debt?
Increases government debt
ExplanationA budget deficit occurs when government spending exceeds revenue, leading to an increase in government debt.