Fiscal Policy: Master Government Spending and Taxation Strategies

Question 1

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

Accepted Answer

Monetary policy

Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Question 2

What is the term used to describe the difference between a government's total revenue and its total expenditure?

Accepted Answer

Fiscal deficit

Answer

Fiscal surplus

Answer

Government surplus

Answer

National debt

Question 3

How can fiscal policy contribute to inflation in an economy?

Accepted Answer

Increasing government spending and lowering taxes, which can boost demand and potentially raise prices

Answer

Decreasing government spending and raising taxes, which can reduce demand and potentially lower prices

Answer

Directly controlling prices through measures like price ceilings and minimum wages

Question 4

Which of these acts as an 'automatic stabilizer' to help balance the economy?

Accepted Answer

Changes in unemployment payments

Answer

Government spending on building new roads

Answer

Lowering taxes when the economy is weak

Answer

Actions by the central bank to adjust money supply

Question 5

What is the primary goal of expansionary fiscal policy?

Accepted Answer

Stimulate economic growth

Answer

Reduce inflation

Answer

Increase tax revenue

Question 6

How does increased government spending affect aggregate demand?

Accepted Answer

Increases aggregate demand

Answer

Decreases aggregate demand

Answer

Uncertain impact on aggregate demand

Question 7

Which measure indicates the government's ability to repay its debt?

Accepted Answer

Debt-to-GDP ratio

Answer

Inflation rate

Answer

Unemployment rate

Question 8

How does discretionary fiscal policy differ from non-discretionary fiscal policy?

Accepted Answer

Discretionary is decided by the government, while non-discretionary is automatic

Answer

Non-discretionary is decided by the government, while discretionary is automatic

Question 9

What is the fiscal policy that aims to maintain a sustainable level of economic growth and inflation?

Accepted Answer

Neutral fiscal policy

Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Question 10

What is the primary objective of expansionary fiscal policy?

Accepted Answer

To increase economic activity

Answer

To decrease inflation

Answer

To control exchange rates

Answer

To lower unemployment

Question 11

Which of the following is a tool of contractionary fiscal policy?

Accepted Answer

Increased government spending

Answer

Tax cuts

Answer

Interest rate reduction

Answer

Increased borrowing

Question 12

How does expansionary fiscal policy impact economic growth?

Accepted Answer

It can stimulate growth

Answer

It can reduce growth

Answer

It has no effect on growth

Answer

Both expansionary and contractionary policies increase growth

Question 13

True or False: Neutral fiscal policy aims to leave the economy unchanged.

Accepted Answer

True

Answer

False

Question 14

How does reducing taxes affect consumer spending?

Accepted Answer

Increases consumer spending

Answer

Decreases consumer spending

Answer

Has no effect on consumer spending

Answer

Reduces consumer spending in the long run

Question 15

How can coordinating fiscal and monetary policies enhance their effectiveness in managing the economy?

Accepted Answer

Coordinating fiscal and monetary policies can amplify their effectiveness in achieving economic goals.

Answer

Fiscal and monetary policies operate independently, with no significant interactions.

Answer

Fiscal policy heavily influences monetary policy, but monetary policy has no impact on fiscal policy.

Answer

Fiscal and monetary policies are always flawlessly coordinated, ensuring complete alignment in their effects on the economy.

Question 16

Which of the following is NOT a direct channel through which fiscal policy influences aggregate demand in an economy?

Accepted Answer

Monetary policy

Answer

Government spending

Answer

Taxation

Answer

Interest rates

Question 17

Expansionary fiscal policy involves:

Accepted Answer

Increased government spending and tax cuts

Answer

Decreased government spending and tax increases

Answer

Increased government spending and tax increases

Answer

Decreased government spending and tax cuts

Question 18

Contractionary fiscal policy may lead to:

Accepted Answer

Reduced economic growth

Answer

Increased inflation

Answer

Lower unemployment

Answer

Higher interest rates

Question 19

Which of these fiscal policy actions can help boost the economy while also protecting the environment?

Accepted Answer

Increase funding for renewable energy and energy efficiency projects.

Accepted Answer

Lower taxes for businesses that invest in eco-friendly practices.

Accepted Answer

Charge a carbon tax on polluting industries.

Answer

Give subsidies to fossil fuel companies.

Question 20

How can fiscal policy be used to promote fairness and reduce the gap between rich and poor?

Accepted Answer

Raise taxes on the wealthy and use the money to support programs for the less fortunate.

Answer

Cut government spending on healthcare and education.

Answer

Increase interest rates to encourage saving.

Answer

Reduce the budget deficit by cutting spending.

Question 21

Which of the following is NOT a primary objective of fiscal policy?

Accepted Answer

To optimize societal welfare

Answer

To control inflation

Answer

To promote economic growth

Answer

To reduce unemployment

Question 22

What type of fiscal policy is typically implemented during an economic recession?

Accepted Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Answer

Neutral fiscal policy

Answer

Cyclical fiscal policy

Question 23

What is the term used to describe the increase in government revenue due to the positive impact of economic growth on tax collections?

Accepted Answer

Fiscal dividend

Answer

Fiscal drag

Answer

Fiscal leverage

Answer

Fiscal windfall

Question 24

The purpose of automatic stabilizers in the tax system is to:

Accepted Answer

Mitigate economic fluctuations

Answer

Increase government income

Answer

Encourage job creation

Answer

Control inflation

Question 25

The fiscal multiplier refers to:

Accepted Answer

The change in GDP resulting from a change in government spending

Answer

The ratio of private investment to public investment

Answer

The relationship between government revenue and national debt

Answer

The impact of monetary policy on fiscal policy

Question 26

An example of discretionary fiscal policy would be:

Accepted Answer

Government investment in infrastruktur

Answer

Automatic tax cuts triggered by a recession

Answer

The automatic adjustment of social security benefits

Answer

Interest rate changes by the central bank

Question 27

According to Keynesian economics, which type of fiscal policy is recommended during a recession?

Accepted Answer

Expansionary

Answer

Contractionary

Answer

Balanced

Answer

Neutral

Question 28

A potential benefit of using fiscal policy to control inflation could be:

Accepted Answer

Greater price stability

Answer

Reduced economic growth

Answer

Lower unemployment

Answer

Increased government revenue

Question 29

Which of the following is a common method used by governments to finance a fiscal deficit?

Accepted Answer

Borrowing from financial institutions

Answer

Printing more currency

Answer

Increasing taxes

Answer

Decreasing government spending

Question 30

How does government borrowing primarily impact aggregate demand and the overall economic environment in the context of fiscal policy?

Accepted Answer

Government borrowing generally stimulates aggregate demand by providing more funds for spending.

Answer

Government borrowing has no significant effect on aggregate demand.

Answer

Government borrowing usually reduces aggregate demand by raising interest rates.

Question 31

Which of the following is NOT a primary objective of fiscal policy?

Accepted Answer

Enhancing income equality

Answer

Promoting economic stability

Answer

Encouraging economic growth

Answer

Controlling inflation

Question 32

Which fiscal policy approach involves increasing government spending while reducing taxes?

Accepted Answer

Expansionary

Answer

Contractionary

Answer

Discretionary

Answer

Monetary

Question 33

What is the anticipated impact of an expansionary fiscal policy on aggregate demand?

Accepted Answer

Increase

Answer

Decrease

Answer

No change

Answer

Unpredictable

Question 34

Differentiate between discretionary and non-discretionary fiscal policy:

Accepted Answer

Discretionary involves manual adjustments, while non-discretionary is automatic

Answer

Non-discretionary involves manual adjustments, while discretionary is automatic

Answer

There is no difference between the two

Answer

Discretionary is only used in developed economies, while non-discretionary is only used in developing economies

Question 35

What is the impact of a balanced budget on the national debt?

Accepted Answer

No impact

Answer

Increases the national debt

Answer

Decreases the national debt

Answer

Cannot be determined

Question 36

What is the primary objective of fiscal policy?

Accepted Answer

To influence economic growth and stability

Answer

To manage the money supply

Answer

To control interest rates

Answer

To stabilize the exchange rate

Question 37

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

Accepted Answer

Increasing government spending or reducing taxes

Answer

Raising interest rates

Answer

Borrowing from abroad

Answer

Reducing government spending

Question 38

A potential negative consequence of expansionary fiscal policy is:

Accepted Answer

Inflation

Answer

Economic growth

Answer

Budget surplus

Answer

Reduced unemployment

Question 39

The type of fiscal policy aimed at reducing inflation is:

Accepted Answer

Contractionary

Answer

Structural

Answer

Expansionary

Answer

Neutral

Question 40

Which of the following is considered a transfer payment?

Accepted Answer

Social security benefits

Answer

Education funding

Answer

Infrastructure investment

Answer

Military spending

Question 41

A fiscal deficit occurs when:

Accepted Answer

Government spending exceeds government revenue

Answer

Exports exceed imports

Answer

The stock market falls

Answer

Government revenue exceeds government spending

Question 42

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

Accepted Answer

Monetary policy

Answer

Taxation

Answer

Government spending

Answer

Borrowing

Question 43

The Keynesian theory of fiscal policy emphasizes the:

Accepted Answer

Multiplier effect

Answer

Laffer curve

Answer

Phillips curve

Answer

IS-LM model

Question 44

A key criticism of fiscal policy is the potential for:

Accepted Answer

Crowding out private investment

Answer

No impact on inflation

Answer

Immediate implementation and ease of use

Answer

Guaranteeing economic growth

Question 45

The use of fiscal policy as an automatic stabilizer refers to:

Accepted Answer

Policy changes triggered by economic fluctuations

Answer

International coordination of fiscal policies

Answer

Manual adjustment of fiscal policy by policymakers

Answer

Long-term fiscal planning

Question 46

**Which of the following is a primary objective of fiscal policy?**

Accepted Answer

Manage economic growth and stability

Answer

Promote international travel

Answer

Control the weather patterns

Answer

Determine the national anthem

Question 47

**Which of the following is a potential downside of using fiscal policy to manage the economy?**

Accepted Answer

Crowding out effect

Answer

Lower unemployment

Answer

Increased economic efficiency

Answer

Reduced inflation

Question 48

**Explain the key difference between discretionary fiscal policy and automatic fiscal policy.**

Accepted Answer

Discretionary fiscal policy is implemented at the government's discretion, while automatic fiscal policy responds automatically to economic conditions.

Answer

Discretionary fiscal policy is always more effective than automatic fiscal policy.

Question 49

**Which of the following is a tool that the government utilizes to implement fiscal policy?**

Accepted Answer

Taxes

Answer

Exchange rate policy

Answer

Monetary policy

Question 50

**What effect does a decrease in government spending have on aggregate demand?**

Accepted Answer

Aggregate demand decreases

Answer

Aggregate demand increases initially, then decreases

Answer

Aggregate demand remains unchanged

Answer

Aggregate demand increases

Question 51

**Compared to monetary policy, what is an advantage of fiscal policy?**

Accepted Answer

Fiscal policy can be more targeted to specific sectors of the economy.

Answer

Fiscal policy works faster than monetary policy.

Answer

Fiscal policy is always more effective than monetary policy.

Question 52

**Identify a potential criticism of fiscal policy.**

Accepted Answer

Fiscal policy can lead to large government deficits and debt.

Answer

Fiscal policy has no impact on economic growth.

Answer

Fiscal policy is always effective in achieving its objectives.