4.2.5 Fiscal and Supply-side policies MCQ test

1. Fiscal policy is defined as a method of managing the economy through changes in

• government spending and taxation.
• interest rates.
• exchange rates.
• aggregate supply

The main purpose of fiscal policy is to

• ensure that government spending and taxation are equal.

• control the level of aggregate demand.

• manage aggregate supply

• avoid a budget deficit

3. A contractionary fiscal policy is characterised by

• an increase in government spending

• a reduction in VAT

• a balanced budget

• an increase in a budget surplus

Changes in fiscal policy can increase economic growth by

• reducing inflationary pressure, which will encourage investment.

• creating a budget deficit, which will reduce employment.

• increasing interest rates, which will encourage investment.

• decreasing aggregate supply, which will increase GDP.

A government wishing to increase aggregate demand may use fiscal policy, and therefore

• reduce government spending.

• increase interest rates.

• reduce income tax.

• increase exchange rates.

The rate of growth in an economy is expected to fall below trend growth. Which one of the following policy changes is most likely to restore growth?

• A reduction in the target rate of inflation

• A rise in government spending

• An increase in out-of-work benefits

• A rise in interest rates

Government expenditure can be classed as either revenue expenditure or capital expenditure. Which one of the following options correctly identifies the types of government expenditure?

• A

• B

• C

• D

Public expenditure is government expenditure on goods and services following their consideration of

• collective needs.

• income elasticity.

• economies of scale.

• positive externalities.

9. Which one of the following is an important reason why governments change the level of taxation? In order to manage

• consumption, thereby increasing the extent of negative externalities.

• aggregate demand, thereby helping the government achieve its economic targets.

• exports, thereby increasing a current account deficit.

• aggregate supply, thereby increasing the quantity of imports.

10. Which one of the following combinations gives the correct examples of direct and indirect taxes?

• A

• B

• C

• D