Fiscal Policy

What is the primary purpose of fiscal policy?

• To manipulate the stock market

• To correct fluctuations in the economy

• To fund unnecessary government projects

• To increase government officials' power

What term is used to describe when actual output is below potential GDP?

• Inflationary gap

• Recessionary gap

• Economic boom

• Fiscal cliff

What does expansionary fiscal policy involve?

• Increasing interest rates

• Privatizing government assets

• Reducing taxes and increasing government spending

• Increasing taxes and reducing government spending

Who famously said 'Read my lips, no new taxes'?

• Barack Obama

• Ronald Reagan

• Bill Clinton

• George H. W. Bush

According to Keynes, what can government spending do during a recession?

• Make up for a decrease in consumer spending

• Decrease overall output

• Increase private savings

• Lead to immediate inflation

What is a key argument against deficit spending?

• It leads to increased consumer spending

• It decreases national debt

• It causes crowding out

• It reduces interest rates

What was a major consequence of austerity policies in Europe compared to stimulus in the US?

• Higher GDP growth in Europe

• Lower unemployment rates in Europe

• Higher unemployment rates in Europe

• Increased government spending in Europe

What is the multiplier effect?

• A decrease in taxes leading to a larger decrease in public services

• A decrease in government spending leading to a larger decrease in GDP

• An increase in taxes leading to a larger increase in government revenue

• An increase in government spending leading to a larger increase in total economic output

Which type of fiscal policy has a high multiplier effect?

• Increasing interest rates

• Infrastructure spending

• Reducing minimum wage

• General cuts to payroll and income taxes

Why is confidence considered important in economic recovery?

• It encourages consumer and business spending

• It reduces the national debt

• It ensures government stability

• It guarantees an increase in exports