Principles of Fiscal Policy Quiz

Test your knowledge of fiscal policy principles with questions on inflation control, budget surplus, economic downturns, and more.

#1

Which of the following is a tool used in fiscal policy for controlling inflation?

Expansionary monetary policy
Tight monetary policy
Expansionary fiscal policy
Contractionary fiscal policy
#2

What does a budget surplus indicate about a government's fiscal position?

Government spending exceeds government revenue
Government revenue exceeds government spending
Government borrowing exceeds government lending
Government lending exceeds government borrowing
#3

During an economic downturn, which fiscal policy action is likely to be appropriate?

Increase taxes and decrease government spending
Decrease taxes and increase government spending
Increase taxes and increase government spending
Decrease taxes and decrease government spending
#4

What is the primary goal of fiscal policy during a period of high unemployment?

Stabilize prices
Stimulate economic growth
Control inflation
Achieve budget surplus
#5

What is the crowding-out effect in fiscal policy?

Increase in government spending crowds out private investment
Decrease in government spending crowds in private investment
Increase in government spending stimulates private investment
Decrease in government spending stimulates private investment
#6

Which of the following best describes discretionary fiscal policy?

Automatic stabilizers adjust government spending and taxation based on economic conditions
Government changes taxes and spending intentionally to stabilize the economy
Government intervenes in the market to control interest rates
Government changes interest rates to influence economic activity
#7

What is the primary difference between fiscal policy and monetary policy?

Fiscal policy involves changes in interest rates, while monetary policy involves changes in government spending.
Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in interest rates and money supply.
Fiscal policy involves changes in money supply, while monetary policy involves changes in government spending.
Fiscal policy involves changes in tax rates, while monetary policy involves changes in unemployment rates.
#8

Which of the following is NOT a potential consequence of expansionary fiscal policy?

Higher aggregate demand
Increased government borrowing
Rising inflation
Decreased consumer spending
#9

What is the purpose of using a balanced budget fiscal policy?

To stimulate economic growth during recessions
To stabilize the economy without increasing public debt
To control inflation by reducing government spending
To reduce taxes and increase government spending
#10

Which of the following fiscal policies would likely be adopted to address a budget deficit during an economic expansion?

Contractionary fiscal policy
Expansionary fiscal policy
Neutral fiscal policy
Discretionary fiscal policy
#11

In which situation would automatic stabilizers tend to increase government spending?

During an economic expansion
During an economic recession
During periods of low inflation
During periods of high consumer confidence
#12

What is the effect of a contractionary fiscal policy on aggregate demand and inflation?

Decreases aggregate demand and decreases inflation
Decreases aggregate demand and increases inflation
Increases aggregate demand and decreases inflation
Increases aggregate demand and increases inflation

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