#1
Which of the following is a tool used in fiscal policy for controlling inflation?
Contractionary fiscal policy
ExplanationIt aims to reduce aggregate demand, thereby lowering inflationary pressures.
#2
What does a budget surplus indicate about a government's fiscal position?
Government revenue exceeds government spending
ExplanationIt means the government is taking in more money than it is spending.
#3
During an economic downturn, which fiscal policy action is likely to be appropriate?
Decrease taxes and increase government spending
ExplanationThis stimulates demand by injecting more money into the economy.
#4
What is the primary goal of fiscal policy during a period of high unemployment?
Stimulate economic growth
ExplanationTo increase aggregate demand and create jobs.
#5
What is the crowding-out effect in fiscal policy?
Increase in government spending crowds out private investment
ExplanationWhen government spending increases, it competes with private investment for resources.
#6
Which of the following best describes discretionary fiscal policy?
Government changes taxes and spending intentionally to stabilize the economy
ExplanationIt involves deliberate changes in fiscal measures by the government.
#7
What is the primary difference between fiscal policy and monetary policy?
Fiscal policy involves changes in government spending and taxation, while monetary policy involves changes in interest rates and money supply.
ExplanationFiscal policy deals with government's revenue and spending, while monetary policy deals with money supply and interest rates.
#8
Which of the following is NOT a potential consequence of expansionary fiscal policy?
Decreased consumer spending
ExplanationExpansionary fiscal policy typically boosts consumer spending.
#9
What is the purpose of using a balanced budget fiscal policy?
To stabilize the economy without increasing public debt
ExplanationIt ensures government spending matches its revenue, avoiding debt accumulation.
#10
Which of the following fiscal policies would likely be adopted to address a budget deficit during an economic expansion?
Contractionary fiscal policy
ExplanationTo prevent overheating the economy and worsening inflation.
#11
In which situation would automatic stabilizers tend to increase government spending?
During an economic recession
ExplanationThey automatically increase spending during downturns, like providing more unemployment benefits.
#12
What is the effect of a contractionary fiscal policy on aggregate demand and inflation?
Decreases aggregate demand and decreases inflation
ExplanationIt reduces demand, which in turn lowers inflationary pressures.