Fiscal Policy 2

Government spending on infrastructure and long-term projects, such as building roads and bridges, is an example of:

• Current spending

• Capital spending

• Income redistribution

• Public goods provision

What is least likeley to rise as a result of the use expansionary fiscal policy?

• aggregate demand

• budget surplus

• nominal income

• inflation

A government announces its intention to reduce the level of transfer payments in the economy. Which statement made by the government is consistent with this intention?

• There need to be more incentives for unemployed workers to seek jobs

• State pensions need to be increased

• The level of income tax needs to be raised

• The level of government expenditure needs to be increased

How does an increase in the national debt affect future government spending and fiscal policy choices?

• It reduces the need for future taxation.

• It lowers interest payments, freeing up funds for other purposes.

• It may lead to higher interest payments, crowding out other spending.

• It has no impact on future fiscal policy decisions.

During a period of high inflation, which fiscal policy action is typically recommended to address the issue?

• Decreasing government spending

• Increasing government subsidies

• Implementing expansionary fiscal policy

• Raising interest rates

What is least likely to rise as a result of the use of expansionary fiscal policy?

• aggregate demand

• nominal GDP

• budget surplus

• inflation

Which action is classified as a fiscal policy measure?

• fixing a currency to another country’s currency

• managing changes in the level of government debt

• providing guidance to industry and the public

• reducing liquidity in the banking system

A country is currently experiencing deflation. It has a large national debts that is greater than its annual real income. Which combination of policies is most likely to increase the general price level without adding to the national debt?

• fiscal policy : decrease the budget deficit ;

  monetary policy : decrease the money supply

• fiscal policy : decrease the budget deficit ;

  monetary policy : increase the money supply

• fiscal policy : increase the budget deficit ;

  monetary policy : decrease the money supply

• fiscal policy : increase the budget deficit ;

  monetary policy : increase the money supply

Which fiscal policy would be most appropriate to get out of the recession?

• decrease government spending

• buy bonds on the open market

• raise the reserve requirement

• decrease taxes

A tax system that takes the same percentage of income from all taxpayers, regardless of income

• Proportionate Tax System

• Regressive Tax System

• Progressive Tax System

• Direct Tax System