Public Finance and Fiscal Policy Quiz

Government spending is a key tool in fiscal policy, involving the government's allocation of funds to influence the economy.

The primary goal of fiscal policy is often to reduce unemployment by managing government spending and taxation.

A fiscal year is the timeframe during which a government plans and executes its budget, typically spanning 12 months.

Keynesian economics advocates increasing government spending during recessions to stimulate demand and counter economic downturns.

Governments often issue bonds as the primary means of financing budget deficits, attracting funds from investors.

The national debt represents the cumulative total of outstanding government debt owed to creditors.

A budget deficit occurs when government spending surpasses its revenue, leading to a shortfall.

The Laffer curve depicts the relationship between tax rates and the resulting government revenue, highlighting the point at which excessive taxes may reduce revenue.

While unemployment benefits are part of government spending, they do not contribute to government revenue.

Government subsidies, being subject to deliberate government choices, are considered discretionary tools in fiscal policy.

Counter-cyclical fiscal policy aims to stabilize the economy by offsetting fluctuations in the business cycle through appropriate fiscal measures.

Expansionary fiscal policy involves increasing government spending, especially during recessions, to boost economic activity.

Automatic stabilizers, like tax rebates during recessions, automatically help stabilize the economy without specific government intervention.

The crowding out effect occurs when increased government spending reduces private sector investment by absorbing available funds.