Fiscal Policy and the Economy Reading Guide

What is fiscal policy?

• A strategy for increasing a country's exports

• The government's use of taxing and spending to influence the economy

• A policy focused solely on adjusting interest rates

• A method of predicting economic downturns

What are the two main sources of federal government revenue mentioned?

• Income taxes and payroll taxes

• Property taxes and sales taxes

• Sales taxes and import duties

• Corporate taxes and property taxes

What is the difference between mandatory and discretionary spending?

• Mandatory spending is for military needs, discretionary is for healthcare

• Mandatory spending is required by law, discretionary requires annual approval

• Mandatory spending is for education, discretionary is for infrastructure

• Mandatory spending is decided by the president, discretionary by Congress

What happens when the government spends more than it collects?

• It prints more money

• It increases interest rates

• It has to borrow money

• It reduces the national debt

What is a deficit?

• The total amount of money the government owes

• The difference between what the government spends and what it collects

• An increase in tax revenue

• A decrease in government spending

What can cause a recession according to the text?

• A sudden increase in exports

• Lower interest rates

• A decrease in overall spending by people and businesses

• An increase in government spending

How can the government intervene during a recession?

• By increasing taxes and decreasing spending

• By decreasing taxes and increasing spending

• By printing more money

• By increasing interest rates

What is inflation?

• A decrease in the price of goods and services

• A decrease in the value of the national currency

• A long period of economic decline

• A sudden increase in the prices of many goods and services

What action might the government take to counteract inflation?

• Increase taxes and decrease spending

• Decrease taxes and increase spending

• Print more money

• Decrease interest rates

Why is using fiscal policy to manage the economy problematic?

• It reduces the national debt too quickly

• It has no impact on the economy

• It always leads to a recession

• Most government spending is fixed and not easily changed