Expansionary Fiscal Policy: Boosting Economic Growth through Government Spending and Tax Cuts

Question 1

What are the effects of expansionary fiscal policy on GDP, unemployment, and inflation?

Accepted Answer

Increases GDP, decreases unemployment, and increases inflation

Answer

Decreases GDP, increases unemployment, and decreases inflation

Answer

Increases GDP, increases unemployment, and decreases inflation

Answer

Decreases GDP, decreases unemployment, and increases inflation

Question 2

Compare and contrast expansionary fiscal policy with alternative economic stimulus measures, evaluating their relative strengths and weaknesses.

Accepted Answer

Expansionary fiscal policy can stimulate economic growth more effectively than monetary policy over the short-term.

Accepted Answer

Monetary policy is more effective in controlling inflation than expansionary fiscal policy.

Answer

Expansionary fiscal policy has no effect on exchange rates, unlike monetary policy.

Question 3

When is expansionary fiscal policy most suitable?

Accepted Answer

Economic downturn with high unemployment

Answer

Economic growth with low unemployment

Answer

High inflation with a balanced budget

Answer

Low inflation with a high national debt

Question 4

What is the primary objective of expansionary fiscal policy?

Accepted Answer

To stimulate economic activity during economic downturns

Answer

To reduce inflation

Answer

To balance the government budget

Answer

To maintain exchange rate stability

Question 5

How does increasing government spending impact economic activity?

Accepted Answer

It increases aggregate demand

Answer

It contracts the money supply

Answer

It decreases the value of the currency

Answer

It elevates interest rates

Question 6

Which of the following is a potential benefit of expansionary fiscal policy?

Accepted Answer

Increased employment opportunities

Answer

Controlled inflation

Answer

Balanced trade

Question 7

What is a potential drawback of expansionary fiscal policy?

Accepted Answer

Accumulation of government debt

Answer

Increased exchange rate volatility

Answer

Reduced consumer spending

Answer

Deflation

Question 8

Which of the following is a policy tool commonly used in expansionary fiscal policy?

Accepted Answer

Reduction in taxes

Answer

Interest rate hikes

Answer

Quantitative easing

Answer

Currency devaluation

Question 9

How does expansionary fiscal policy affect the government's financial position?

Accepted Answer

It typically increases the budget deficit or reduces the surplus

Answer

It balances the budget

Answer

It reduces the deficit or increases the surplus

Answer

It has no impact on the budget

Question 10

Expansionary fiscal policy is generally most appropriate when:

Accepted Answer

The economy is experiencing a recession or is below full employment

Answer

Inflation is significantly high

Answer

The government has achieved a balanced budget

Question 11

Which of the following is a limitation of expansionary fiscal policy?

Accepted Answer

It can contribute to inflation if implemented excessively

Answer

It is easy to implement and reverse

Answer

It is always effective in stimulating economic growth

Question 12

Expansionary fiscal policy primarily targets which type of economic problems?

Accepted Answer

Demand-side problems

Answer

Supply-side problems

Answer

Cost-push problems

Answer

Structural problems

Question 13

When evaluating the effectiveness of expansionary fiscal policy, which of the following macroeconomic concepts is important to consider?

Accepted Answer

Multiplier effect

Answer

Consumer preferences

Answer

Exchange rate fluctuations

Answer

Weather conditions

Question 14

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

Accepted Answer

Reduced inflation

Answer

Reduced unemployment

Answer

Increased consumer spending

Answer

Increased economic growth

Question 15

In an economy experiencing a recession, which type of fiscal policy is typically implemented?

Accepted Answer

Expansionary

Answer

Discretionary

Answer

Contractionary

Question 16

Which of the following is a key tool used in expansionary fiscal policy?

Accepted Answer

Government spending

Answer

Interest rates

Answer

Quantitative easing

Answer

Monetary policy

Question 17

What is the primary goal of expansionary fiscal policy?

Accepted Answer

To stimulate economic activity

Answer

To reduce inflation

Answer

To increase government revenue

Answer

To stabilize the exchange rate

Question 18

Which of the following is NOT a potential risk associated with expansionary fiscal policy?

Accepted Answer

Reduced national debt

Answer

Crowding out of private investment

Answer

Currency depreciation

Answer

Increased inflation

Question 19

In the context of expansionary fiscal policy, what is the term used to describe the increase in demand resulting from government spending?

Accepted Answer

Multiplier effect

Answer

Laffer curve

Answer

Phillips curve

Answer

Crowding out effect

Question 20

Which of the following would most likely be a target of expansionary fiscal policy?

Accepted Answer

Increased employment

Answer

Stable exchange rate

Answer

Balanced budget

Answer

Decreased inflation

Question 21

What is the primary purpose of expansionary fiscal policy?

Accepted Answer

To stimulate economic activity and bolster economic growth.

Answer

To reduce unemployment.

Answer

To balance the budget.

Answer

To decrease government debt.

Question 22

Which is the primary mechanism for implementing expansionary fiscal policy?

Accepted Answer

Increasing government spending or reducing taxes.

Answer

Reducing the money supply.

Answer

Increasing interest rates.

Answer

Raising taxes.

Question 23

Which of the following is a potential positive outcome of expansionary fiscal policy?

Accepted Answer

Increased economic growth and a higher level of employment.

Answer

Increased unemployment.

Answer

Reduced inflation.

Answer

Lowered interest rates.

Question 24

According to Keynesian economics, expansionary fiscal policy is particularly effective when:

Accepted Answer

The economy is facing a recession or economic downturn.

Answer

The economy is experiencing high inflation.

Answer

The central bank is implementing a tight monetary policy.

Answer

The government budget is in surplus.

Question 25

Which of the following is a potential negative consequence of expansionary fiscal policy?

Accepted Answer

Increased government debt.

Answer

Lowered consumer confidence.

Answer

Increased exports.

Answer

Increased private investment.

Question 26

How does expansionary fiscal policy typically impact aggregate demand (AD)?

Accepted Answer

Shifts the AD curve to the right.

Answer

Shifts the AD curve to the left.

Answer

Steepens the AD curve.

Answer

Flattens the AD curve.

Question 27

What is a key factor for policymakers to consider when implementing expansionary fiscal policy?

Accepted Answer

The size and effectiveness of the fiscal multiplier.

Answer

The level of public support for the policy.

Answer

The availability of funding from international organizations.

Answer

The weather forecast.

Question 28

What is the primary distinction between expansionary fiscal policy and expansionary monetary policy?

Accepted Answer

Expansionary fiscal policy involves government spending and taxes, while expansionary monetary policy involves interest rates and the money supply.

Answer

Expansionary fiscal policy is always more effective than expansionary monetary policy.

Question 29

Under which condition would expansionary fiscal policy be least effective?

Accepted Answer

When the economy is already at or near full employment and productive capacity.

Answer

When consumer confidence is low.

Answer

When the government budget is in deficit.

Answer

When inflation is high.

Question 30

Which of the following can be a potential unintended consequence of expansionary fiscal policy?

Accepted Answer

Crowding out of private investment due to increased government borrowing and competition for resources.

Answer

Lowered unemployment.

Answer

Increased consumer spending.

Question 31

Which of the following is a primary reason for implementing expansionary fiscal policy?

Accepted Answer

Stimulating economic activity during a recession

Answer

Reducing government expenditure

Answer

Preventing high inflation

Question 32

Which fiscal policy tool involves increasing government outlays?

Accepted Answer

Government spending

Answer

Quantitative easing

Answer

Taxation

Answer

Interest rates

Question 33

What is the term for the automatic stabilizers that occur during an economic downturn?

Accepted Answer

Built-in fiscal stabilizers

Answer

Keynesian economics

Answer

Discretionary fiscal policy

Answer

Expansionary policy

Question 34

In which economic condition is expansionary fiscal policy typically implemented?

Accepted Answer

Recession

Answer

Boom

Answer

Deflation

Answer

Inflation

Question 35

What is the multiplier effect?

Accepted Answer

The increase in overall spending resulting from an initial injection of government spending

Answer

The fiscal drag on economic growth

Answer

The crowding out of private investment by government spending

Question 36

Which component of the IS-LM model captures the impact of fiscal policy?

Accepted Answer

Government spending (G)

Answer

Price level (P)

Answer

Money supply (M)

Answer

Investment (I)

Question 37

What is an advantage of using automatic fiscal stabilizers?

Accepted Answer

Quick and automatic response to economic fluctuations

Answer

Greater flexibility in policymaking

Answer

Reduced political interference

Question 38

Which of the following is NOT a factor to consider when designing an expansionary fiscal policy?

Accepted Answer

Long-term economic growth

Answer

Government debt levels

Answer

Potential for inflation

Answer

Level of unemployment

Question 39

Which of the following is a key goal of expansionary fiscal policy?

Accepted Answer

Stimulating economic activity

Answer

Balancing the budget

Answer

Maintaining a stable exchange rate

Answer

Reducing inflation

Question 40

In an expansionary fiscal policy, which of the following is likely to increase?

Accepted Answer

Government spending

Answer

Taxes

Answer

Inflation

Answer

Interest rates

Question 41

Which of the following is a potential negative consequence of expansionary fiscal policy?

Accepted Answer

Increased government debt and potential crowding out of private investment

Answer

Lowered interest rates

Answer

Reduced consumer spending

Answer

Increased exports

Question 42

In Keynesian economics, expansionary fiscal policy is primarily justified by which of the following?

Accepted Answer

The multiplier effect, which suggests that government spending can have a magnified impact on overall economic activity

Answer

The Solow model, which explains long-term economic growth

Answer

The Laffer curve, which suggests that tax cuts can increase tax revenue

Answer

The Phillips curve, which shows the relationship between inflation and unemployment

Question 43

Which of the following is a commonly used tool to measure the impact of expansionary fiscal policy?

Accepted Answer

Fiscal multiplier, which estimates the overall change in GDP resulting from a change in government spending or taxes

Answer

Exchange rate, which measures the value of one currency relative to another

Answer

Consumer confidence index, which gauges consumer sentiment

Answer

Gini coefficient, which measures income inequality

Question 44

In a high-inflation environment, expansionary fiscal policy is likely to:

Accepted Answer

Exacerbate inflation by increasing demand in the economy

Answer

Stabilize the currency by reducing uncertainty

Answer

Stimulate investment by providing incentives for businesses to expand

Answer

Reduce unemployment by stimulating job creation

Question 45

In contrast to contractionary fiscal policy, expansionary fiscal policy typically involves:

Accepted Answer

Increasing government spending or reducing taxes, which aims to stimulate economic activity

Answer

Controlling inflation by targeting price stability

Answer

Decreasing government spending or raising taxes, which aims to reduce economic activity

Answer

Maintaining a balanced budget, which means government spending equals tax revenue

Question 46

Expansionary fiscal policy aims primarily to:

Accepted Answer

Stimulate economic activity by increasing aggregate demand

Answer

Promote balanced economic growth

Answer

Reduce unemployment

Answer

Control inflation

Question 47

How does increasing government spending stimulate economic activity?

Accepted Answer

It increases disposable income and consumption

Answer

It increases the money supply

Answer

It reduces interest rates

Answer

It lowers the exchange rate

Question 48

Which of the following is a potential negative consequence of expansionary fiscal policy?

Accepted Answer

Increased government debt

Answer

Reduced economic growth

Answer

Higher tax revenue

Answer

Lower inflation

Question 49

The fiscal multiplier measures the:

Accepted Answer

Ratio of the change in GDP to the change in government spending

Answer

Ratio of the change in tax revenue to the change in GDP

Answer

Ratio of the change in price level to the change in money supply

Question 50

Expansionary fiscal policy is most effective when implemented:

Accepted Answer

During economic downturns

Answer

During periods of steady economic growth

Answer

During periods of low unemployment

Answer

During periods of high inflation

Question 51

A limitation of using government spending in expansionary fiscal policy is its:

Accepted Answer

Difficulty in targeting specific sectors of the economy

Answer

Guaranteed effectiveness in stimulating economic activity

Answer

Quick implementation

Question 52

A potential unintended consequence of expansionary fiscal policy is:

Accepted Answer

Inflation

Answer

Recession

Answer

Economic stability

Answer

Deflation