Fiscal Policy

What does fiscal policy involve?

• The government changing levels of taxation and government spending

• Central banks changing interest rates

• Businesses adjusting their investment strategies

• Consumers changing their saving and spending habits

What is the formula for aggregate demand (AD)?

• AD = C + I + G - X + M

• AD = C + I - G + X - M

• AD = C - I + G + X + M

• AD = C + I + G + X - M

What is one purpose of fiscal policy?

• To reduce the money supply in the economy

• To increase the national debt

• To eliminate government spending

• To stimulate economic growth in a recession

What does expansionary fiscal policy involve?

• Decreasing AD by decreasing spending and increasing taxes

• Increasing AD by decreasing spending and increasing taxes

• Decreasing AD by increasing spending and cutting taxes

• Increasing AD by increasing spending and cutting taxes

What is the UK government's target for inflation?

• 1%

• 2%

• 5%

• 3%

What is a primary budget deficit?

• The total amount of money a government has in its reserves

• The surplus of tax receipts over government spending

• The total amount of money a country owes to its creditors

• A measure of government spending minus tax receipts, ignoring interest payments

What does the multiplier effect describe?

• The impact of inflation on consumer spending

• The effect of interest rates on investment

• When an increase in withdrawals causes a decrease in Real GDP

• When an increase in injections causes a bigger final increase in Real GDP

What are automatic fiscal stabilisers?

• Mechanisms that adjust AD without deliberate government intervention

• Policies that require legislative action to implement

• Interest rate adjustments made by the central bank

• Long-term infrastructure projects

What is one criticism of fiscal policy?

• It guarantees economic stability

• It eliminates the need for monetary policy

• It directly controls the money supply

• It may lead to higher borrowing costs

What is meant by 'crowding out' in the context of fiscal policy?

• Higher government spending may reduce private sector investment

• The exclusion of foreign companies from domestic markets

• Government policies that exclude small businesses from the market

• The process of reducing government debt