Fiscal Policy: Master Government Spending and Taxation for Economic Outcomes

Question 1

Which fiscal policy measure entails an increase in government spending?

Accepted Answer

Expansionary fiscal policy

Answer

Restrictive fiscal policy

Answer

Contractionary fiscal policy

Answer

Deflationary fiscal policy

Question 2

Which type of fiscal policy is commonly used to stimulate economic activity during a recession?

Accepted Answer

Expansionary fiscal policy

Answer

Restrictive fiscal policy

Answer

Balanced budget policy

Answer

Devaluation

Question 3

Which of the following is a key characteristic of an expansionary fiscal policy?

Accepted Answer

Increased government spending and decreased taxes

Answer

Increased government spending and increased taxes

Answer

Decreased government spending and increased taxes

Answer

Decreased government spending and decreased taxes

Question 4

An expansionary fiscal policy involves:

Accepted Answer

Increasing government spending and reducing taxes

Answer

Decreasing government spending and increasing taxes

Answer

Increasing both government spending and taxes

Answer

Decreasing both government spending and taxes

Question 5

A primary objective of fiscal policy is to:

Accepted Answer

Promote economic growth

Answer

Ensure price stability

Answer

Reduce income inequality

Answer

Protect the environment

Question 6

Which of the following is a potential advantage of fiscal policy as a tool for stimulating economic growth?

Accepted Answer

Lower unemployment

Answer

Increased inflation

Answer

Higher government debt

Answer

Reduced investment

Question 7

Fiscal policy is considered:

Accepted Answer

Both automatic and discretionary

Answer

An automatic stabilizer

Answer

A discretionary policy

Answer

Neither automatic nor discretionary

Question 8

Keynesian economics emphasizes the significance of fiscal policy in managing:

Accepted Answer

Aggregate demand

Answer

Aggregate supply

Answer

Fiscal deficit

Answer

Inflation

Question 9

Fiscal policy is commonly used to achieve:

Accepted Answer

Economic stabilization

Answer

Social equity

Answer

Reduced income inequality

Answer

Increased government revenue

Question 10

Identify the statement that does NOT represent a limitation of fiscal policy:

Accepted Answer

Guaranteed effectiveness in achieving economic goals

Answer

Potential political obstacles to implementation

Answer

Time lag in its impact

Answer

Potential ineffectiveness over the long term

Question 11

The multiplier effect in fiscal policy refers to:

Accepted Answer

The amplified impact of government spending or tax adjustments on economic activity

Answer

The direct impact of government spending or tax adjustments on economic activity

Answer

The long-term effects of government spending or tax adjustments on economic activity

Answer

The short-term effects of government spending or tax adjustments on economic activity

Question 12

Which of the following is an example of an automatic fiscal stabilizer?

Accepted Answer

Government unemployment benefits

Answer

Progressive income tax

Answer

Monetary policy intervention

Answer

Investment tax incentives

Question 13

Keynesian economic theory emphasizes the importance of:

Accepted Answer

Government involvement in stimulating economic activity during economic downturns

Answer

Maintaining balanced government budgets in the long run

Answer

Monetary policy's effectiveness in controlling inflation

Answer

The private sector's role in driving economic growth

Question 14

What is the primary aim of fiscal policy?

Accepted Answer

To promote economic growth and stability

Answer

To control inflation

Answer

To reduce unemployment

Answer

To improve income distribution

Question 15

How does expansionary fiscal policy affect aggregate demand?

Accepted Answer

It increases aggregate demand

Answer

It decreases aggregate demand

Answer

It has no effect on aggregate demand

Answer

Its effect depends on the specific measures implemented

Question 16

Which of the following is an example of a discretionary fiscal policy measure?

Accepted Answer

Government infrastructure spending

Answer

Progressive income tax

Answer

Automatic tax refunds during recessions

Answer

Unemployment benefits

Question 17

What is the concept of the multiplier effect in fiscal policy?

Accepted Answer

The idea that changes in government spending have a greater impact on aggregate demand than the initial change itself

Answer

The idea that changes in government spending have a smaller impact on aggregate demand than the initial change itself

Answer

The idea that changes in government spending have no impact on aggregate demand

Answer

The idea that changes in government spending have an unpredictable impact on aggregate demand

Question 18

An increase in government spending during a recessionary period is an example of:

Accepted Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Answer

Balanced budget fiscal policy

Answer

Structural fiscal policy

Question 19

The government uses contractionary fiscal policy to:

Accepted Answer

Reduce inflation

Answer

Increase economic growth

Answer

Increase employment

Answer

Decrease government revenue

Question 20

When government spending exceeds government revenue, it results in a:

Accepted Answer

Budget deficit

Answer

Budget surplus

Answer

Balanced budget

Answer

Government surplus

Question 21

According to the Laffer Curve, very high tax rates can lead to:

Accepted Answer

Decreased tax revenue

Answer

Increased tax revenue

Answer

No change in tax revenue

Answer

Increased government spending

Question 22

Fiscal drag occurs when:

Accepted Answer

Tax revenue increases faster than government spending

Answer

Government spending increases faster than tax revenue

Answer

Government spending decreases faster than tax revenue

Answer

Government borrowing increases

Question 23

Which of the following is not a tool of fiscal policy?

Accepted Answer

Monetary policy

Answer

Government spending

Answer

Taxation

Answer

Exchange rates

Question 24

Which of the following is **not** an expansionary fiscal policy measure?

Accepted Answer

Raising interest rates

Answer

Increasing government expenditure

Answer

Reducing taxes

Answer

Increasing government borrowing

Question 25

The primary goal of contractionary fiscal policy is to:

Accepted Answer

Reduce inflation

Answer

Increase employment

Answer

Stimulate economic growth

Answer

Control the budget deficit

Question 26

The multiplier effect suggests that:

Accepted Answer

Government spending has a more significant impact on output than its initial amount

Answer

Tax cuts have a smaller impact on output than their initial amount

Answer

Government borrowing has no impact on output

Answer

Fiscal policy is ineffective in the long run

Question 27

Automatic stabilizers are fiscal policy measures that:

Accepted Answer

Respond automatically to changes in the economy

Answer

Require government action to be implemented

Answer

Are only effective in the short run

Answer

Are designed to increase government revenue

Question 28

Which of the following is an example of a **progressive** tax system?

Accepted Answer

Income tax

Answer

Sales tax

Answer

Corporation tax

Answer

Value-added tax

Question 29

The fiscal policy stance of a government refers to:

Accepted Answer

The overall direction of government spending and taxation

Answer

The level of government debt

Answer

The rate of inflation

Answer

The unemployment rate

Question 30

Which of the following is NOT a type of fiscal policy?

Accepted Answer

Monetary policy

Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Answer

Neutral fiscal policy

Question 31

What is the primary goal of expansionary fiscal policy?

Accepted Answer

To stimulate economic growth

Answer

To reduce inflation

Answer

To balance the government budget

Answer

To increase unemployment

Question 32

Which of the following is a tool of fiscal policy used to increase government spending?

Accepted Answer

Government borrowing

Answer

Tax cuts

Answer

Interest rate adjustments

Answer

Quantitative easing

Question 33

What is the impact of contractionary fiscal policy on aggregate demand?

Accepted Answer

Decreases aggregate demand

Answer

Increases aggregate demand

Answer

Has no effect on aggregate demand

Answer

Depends on the level of inflation

Question 34

What is the relationship between fiscal policy and monetary policy?

Accepted Answer

They can be used in conjunction

Answer

They are mutually exclusive

Answer

Fiscal policy is always more effective than monetary policy

Answer

Monetary policy is always more effective than fiscal policy

Question 35

What is the role of the government budget in fiscal policy?

Accepted Answer

To indicate the government's fiscal stance

Answer

To determine the level of taxation

Answer

To control inflation

Answer

To influence the exchange rate

Question 36

What is the concept of 'fiscal drag'?

Accepted Answer

The automatic increase in tax revenue as income levels rise

Answer

The automatic decrease in tax revenue as income levels rise

Answer

The government's use of fiscal policy to reduce the budget deficit

Answer

The use of fiscal policy to stimulate economic growth

Question 37

How does expansionary fiscal policy typically impact the government budget deficit?

Accepted Answer

Increases the deficit

Answer

Decreases the deficit

Answer

No impact on the deficit

Answer

Depends on the specific mix of spending and tax changes

Question 38

Which of the following is not a tool of fiscal policy?

Accepted Answer

Interest rates

Answer

Government spending

Answer

Taxation

Answer

Transfer payments

Question 39

What is the Keynesian multiplier effect?

Accepted Answer

The increase in GDP resulting from an initial increase in government spending or tax cuts

Answer

The decrease in GDP resulting from an increase in interest rates

Answer

The increase in inflation resulting from an expansionary fiscal policy

Answer

The decrease in unemployment resulting from a contractionary fiscal policy

Question 40

Which of the following is an advantage of fiscal policy over monetary policy?

Accepted Answer

It can be precisely targeted to specific sectors

Answer

It is less likely to cause inflation

Answer

It is easier to implement quickly

Answer

It is inherently more transparent

Question 41

What is the automatic stabilizer mechanism?

Accepted Answer

Fiscal policy measures that automatically adjust to changes in economic conditions

Answer

Monetary policy measures that adjust to changes in the money supply

Answer

Government spending that remains constant regardless of economic conditions

Answer

Taxes that are increased or decreased based on economic growth

Question 42

In a recession, expansionary fiscal policy may be used to achieve:

Accepted Answer

Increased aggregate demand and economic output

Answer

Decreased aggregate demand and economic output

Answer

Higher unemployment

Answer

Lower inflation

Question 43

How does fiscal drag differ from fiscal stimulus?

Accepted Answer

Fiscal drag occurs when taxes automatically increase during economic growth, while fiscal stimulus involves decreasing taxes

Answer

Fiscal drag reduces government spending with economic growth, while fiscal stimulus increases government spending

Answer

Fiscal drag entails automatic tax decreases as the economy grows, while fiscal stimulus involves increasing taxes

Answer

Fiscal drag increases government spending during economic growth, while fiscal stimulus involves decreasing spending

Question 44

Which of the following is NOT a recognized type of fiscal policy?

Accepted Answer

Monetary

Answer

Expansionary

Answer

Contractionary

Answer

Supply-side economics

Question 45

How does a decrease in government spending typically affect aggregate demand?

Accepted Answer

Decrease

Answer

Increase

Answer

No change

Answer

Unpredictable

Question 46

Which of the following is a potential risk associated with implementing contractionary fiscal policy?

Accepted Answer

Recession

Answer

Inflation

Answer

Increased income inequality

Answer

Currency appreciation

Question 47

Define the multiplier effect in fiscal policy.

Accepted Answer

The additional change in GDP resulting from a change in government spending or taxes

Answer

The total amount of government spending in an economy

Answer

The rate at which inflation increases

Answer

The difference between exports and imports

Question 48

Explain the distinction between automatic and discretionary fiscal policy.

Accepted Answer

Automatic fiscal policy responds to economic conditions automatically, while discretionary fiscal policy requires government intervention.

Answer

Discretionary fiscal policy responds to economic conditions automatically, while automatic fiscal policy requires government intervention.

Answer

Both automatic and discretionary fiscal policy require government intervention.

Answer

There is no difference between automatic and discretionary fiscal policy.

Question 49

Which of the following is a measure of a country's fiscal sustainability?

Accepted Answer

Government debt-to-GDP ratio

Answer

Current account balance

Answer

Inflation rate

Answer

Unemployment rate

Question 50

Which of the following is a **direct** potential impact of expansionary fiscal policy?

Accepted Answer

Increased aggregate demand

Answer

Higher interest rates

Answer

Reduced inflation

Answer

Lower unemployment