Fiscal Policy: Master Government Spending and Taxation for Economic Outcomes

Question 1

What is a primary goal of fiscal policy?

Accepted Answer

Promote economic growth and stability

Answer

Increase government debt

Answer

Reduce government regulations

Answer

Eliminate poverty

Question 2

The balanced budget amendment aims to:

Accepted Answer

Require the government to balance its budget annually

Answer

Reduce the size of the national debt

Answer

Raise taxes on high-income earners

Answer

Increase infrastructure spending

Question 3

Crowding out refers to:

Accepted Answer

The tendency for government borrowing to reduce private investment

Answer

The tendency for government spending to increase inflation

Answer

The tendency for taxation to reduce economic growth

Answer

The tendency for budget deficits to increase the national debt

Question 4

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

Accepted Answer

Protecting the environment

Answer

Promoting economic growth

Answer

Maintaining price stability

Answer

Achieving full employment

Question 5

An increase in government spending is considered to be:

Accepted Answer

Expansionary fiscal policy

Answer

Contractionary fiscal policy

Answer

Neutral fiscal policy

Answer

Monetary policy

Question 6

What is the likely impact of a tax increase on economic growth?

Accepted Answer

Negative impact

Answer

Positive impact

Answer

Neutral impact

Answer

Uncertain impact

Question 7

Which of the following is considered an automatic stabilizer in fiscal policy?

Accepted Answer

Progressive income tax

Answer

Counter-cyclical government spending

Answer

Central bank interest rate adjustments

Answer

Quantitative easing

Question 8

In the context of Keynesian economics, what is the 'multiplier effect' with regard to fiscal policy?

Accepted Answer

The increase in aggregate demand resulting from a change in government spending or taxes

Answer

The decrease in aggregate demand resulting from a change in government spending or taxes

Answer

The time lag between a change in fiscal policy and its full impact on the economy

Answer

The level of government debt as a percentage of GDP

Question 9

Expansionary fiscal policy typically involves:

Accepted Answer

Increasing government spending and reducing taxes

Answer

Increasing government spending and increasing taxes

Answer

Reducing government spending and reducing taxes

Answer

Reducing government spending and increasing taxes

Question 10

Which of the following would be an appropriate contracyclical fiscal policy measure during an economic recession?

Accepted Answer

Increasing government spending

Answer

Reducing government spending

Answer

Increasing taxes

Answer

Reducing taxes

Question 11

What is the key difference between automatic and discretionary fiscal policy?

Accepted Answer

Automatic fiscal policy responds to economic conditions, while discretionary fiscal policy is implemented at the discretion of policymakers.

Answer

Discretionary fiscal policy responds to economic conditions, while automatic fiscal policy is implemented at the discretion of policymakers.

Answer

Automatic fiscal policy is more effective than discretionary fiscal policy.

Answer

Discretionary fiscal policy is more effective than automatic fiscal policy.

Question 12

Which of the following is a Keynesian argument for fiscal policy intervention?

Accepted Answer

Government spending can stimulate aggregate demand during economic downturns.

Answer

Fiscal policy is the most effective way to control inflation.

Answer

Government borrowing does not have any macroeconomic effects.

Answer

Fiscal policy is always more effective than monetary policy.

Question 13

What is the crowding-out effect?

Accepted Answer

The tendency for government borrowing to increase interest rates and reduce private investment.

Answer

The tendency for government spending to increase economic growth and reduce unemployment.

Answer

The tendency for fiscal policy to have unintended negative consequences.

Answer

The tendency for monetary policy to have unintended negative consequences.

Question 14

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

Accepted Answer

Interest rate manipulation

Answer

Government spending

Answer

Taxation

Answer

Transfer payments

Question 15

Which of the following is a potential advantage of using fiscal policy rather than monetary policy?

Accepted Answer

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

Answer

Monetary policy is more effective than fiscal policy.

Answer

Fiscal policy has no impact on inflation.

Answer

Monetary policy has no impact on economic growth.

Question 16

The main objective of contractionary fiscal policy is to:

Accepted Answer

Control inflation and reduce government borrowing

Answer

Stimulate economic growth

Answer

Increase unemployment and reduce government debt

Answer

Stabilize the economy during economic downturns

Question 17

Which of the following is a potential effect of fiscal policy on economic growth?

Accepted Answer

Increased investment, innovation, and consumer spending

Answer

Reduced business investment, consumer spending, and government expenditure

Answer

Lower inflation and higher unemployment

Answer

Increased government debt and budget surpluses

Question 18

What is a potential advantage of employing automatic stabilizers in fiscal policy?

Accepted Answer

Prompt response to economic fluctuations

Answer

Reduced government intervention in the economy

Answer

Increased government revenue and reduced expenditure

Answer

Lower inflation and increased unemployment

Question 19

The fiscal deficit is defined as:

Accepted Answer

Government expenditure minus government revenue

Answer

Government revenue minus government expenditure

Answer

The amount of government debt

Answer

The difference between exports and imports

Question 20

For optimal effectiveness, fiscal policy should be:

Accepted Answer

Coordinated with monetary policy and other economic policies

Answer

Used independently of monetary policy

Answer

Implemented swiftly and without prior planning

Answer

Focused solely on reducing government debt

Question 21

Which of the following is considered a primary fiscal policy tool?

Accepted Answer

Adjusting government spending

Answer

Altering short-term interest rates

Answer

Implementing quantitative easing

Answer

Devaluing the currency

Question 22

Expansionary fiscal policy generally aims to:

Accepted Answer

Stimulate economic growth

Answer

Reduce government debt

Answer

Control inflation

Answer

Stabilize exchange rates

Question 23

How does an increase in government spending typically affect aggregate demand in an economy?

Accepted Answer

Increases it

Answer

Decreases it

Answer

Has no effect

Answer

Shifts it to the left

Question 24

In the context of fiscal policy, the multiplier effect refers to:

Accepted Answer

The proportional change in national income resulting from a change in government spending

Answer

The difference between government revenue and expenditure

Answer

The rate at which inflation increases over time

Answer

The percentage of GDP accounted for by government debt

Question 25

How does a balanced budget amendment typically restrict the government's ability to use fiscal policy?

Accepted Answer

Prohibits the government from running a budget deficit

Answer

Limits the government's ability to increase spending

Answer

Requires the government to reduce the national debt

Answer

Mandates tax increases to cover all spending

Question 26

How is fiscal policy interrelated with monetary policy?

Accepted Answer

Fiscal policy can be used to counterbalance the effects of monetary policy.

Answer

Monetary policy is more effective than fiscal policy in managing economic fluctuations.

Answer

Fiscal policy is primarily responsible for long-term economic growth.

Answer

Fiscal and monetary policy operate independently without interaction.

Question 27

Which fiscal tool involves adjusting tax rates?

Accepted Answer

Taxation

Answer

Quantitative easing

Answer

Monetary policy

Answer

Government borrowing

Question 28

How does a contractionary fiscal policy differ from an expansionary fiscal policy?

Accepted Answer

It decreases government spending and raises taxes

Answer

It increases government spending and reduces taxes

Answer

It has no impact on government spending or taxes

Answer

It is only applied in times of economic recession

Question 29

What is the concept of "automatic stabilizers" in fiscal policy?

Accepted Answer

Policies that automatically adjust government spending and revenue based on economic conditions

Answer

Policies that are implemented manually by the government

Answer

Policies that are only used in extreme economic circumstances

Answer

Policies that have no impact on the economy

Question 30

How can fiscal policy impact the distribution of income?

Accepted Answer

Its impact depends on the specific fiscal policies implemented

Answer

It can reduce income inequality

Answer

It can increase income inequality

Answer

It has no impact on income distribution

Question 31

Expansionary fiscal policy refers to:

Accepted Answer

Increasing government spending or cutting taxes

Answer

Decreasing government spending and raising taxes

Answer

Maintaining current levels of government spending and taxes

Answer

Either A or B, depending on the economic conditions

Question 32

The concept of 'automatic stabilizers' in fiscal policy refers to:

Accepted Answer

Fiscal policy measures that operate automatically to smooth out economic fluctuations

Answer

Government spending programs that are only implemented during recessions

Answer

Tax cuts that are triggered when unemployment rises

Answer

Interest rate changes that are implemented by the central bank

Question 33

The 'Laffer Curve' illustrates the relationship between:

Accepted Answer

Tax rates and tax revenue

Answer

Inflation and unemployment

Answer

Government spending and economic growth

Answer

Interest rates and investment

Question 34

Which of the following is a fiscal policy tool commonly used to combat inflation?

Accepted Answer

Tax increases

Answer

Expansionary spending

Answer

Tax cuts

Answer

Contractionary spending

Question 35

The 'crowding out effect' in fiscal policy refers to the situation where:

Accepted Answer

Increased government borrowing reduces the availability of funds for private investment

Answer

Increased government spending leads to higher inflation

Answer

Expansionary fiscal policy stimulates economic growth too quickly

Answer

Automatic stabilizers lead to ineffective fiscal policy

Question 36

The 'fiscal multiplier' measures:

Accepted Answer

The change in economic output resulting from a given change in government spending

Answer

The change in government revenue resulting from a given change in tax rates

Answer

The change in inflation resulting from a given change in government borrowing

Answer

The change in unemployment resulting from a given change in government subsidies

Question 37

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

Accepted Answer

Monetary policy

Answer

Government spending

Answer

Taxes

Answer

Interest rates