Fiscal Policy

What is fiscal policy?

• A strategy for international trade

• A set of government tools to fight unemployment or inflation

• A monetary policy tool used by the Federal Reserve

• A method of regulating the stock market

Who can implement changes in fiscal policy?

• The Federal Reserve

• Banks and financial institutions

• State governments

• The President and Congress

What does an increase in taxes lead to?

• Decreased disposable income

• Increased investment by businesses

• Increased government spending

• Higher inflation rates

What is the purpose of expansionary fiscal policy?

• To reduce government spending

• To increase taxes

• To fight unemployment

• To increase the national debt

What happens when government spending increases?

• Decrease in consumer spending

• Increase in taxes

• Increase in consumer spending

• Decrease in national debt

What is an example of a transfer payment?

• Government salaries

• Unemployment compensation

• Corporate subsidies

• Infrastructure spending

What is the effect of contractionary fiscal policy?

• Both reduced inflation and increased unemployment

• Reduced inflation

• Increased inflation

• Increased unemployment

What are automatic stabilizers?

• Tools that automatically adjust to smooth out economic fluctuations

• Fixed tax rates

• Long-term infrastructure projects

• Policies that require annual renewal

What is a potential downside of expansionary fiscal policy?

• Decreased consumer spending

• Reduced unemployment

• Increased national debt

• Lower inflation rates

What does the balanced budget multiplier suggest?

• Decreasing taxes and spending by the same amount will increase GDP

• Increasing taxes and spending by the same amount will increase GDP

• Increasing taxes will always boost the economy

• Decreasing spending will reduce the national debt