Exploring Fiscal Policy and Economic Growth

What does the Phillips curve model illustrate?

• The relationship between GDP and interest rates

• The trade-off between inflation and unemployment in the short run

• The correlation between fiscal policy and economic growth

• The impact of monetary policy on the price level

In the long run, how does the Phillips curve represent the relationship between inflation and unemployment?

• As a downward sloping curve

• As an upward sloping curve

• As a vertical line

• As a horizontal line

What concept explains why changes in the money supply do not affect real GDP in the long run?

• The liquidity preference theory

• The long-run neutrality of money

• The Keynesian cross model

• The multiplier effect

How does an increase in the money supply typically affect nominal interest rates in the short run?

• It initially decreases them, then increases them

• It causes them to increase

• It causes them to decrease

• It has no effect on them

What is the primary focus of long-run fiscal policy?

• Setting short-term interest rates

• Controlling the money supply

• Influencing the budget balance and its implications on economic growth

• Managing the business cycle

What is the immediate effect of expansionary fiscal policy on the real interest rate?

• It initially decreases then increases the real interest rate.

• It decreases the real interest rate.

• It has no effect on the real interest rate.

• It increases the real interest rate.

What does the term 'crowding out' refer to in the context of fiscal policy?

• The process of government replacing private sector roles in the economy.

• The increase in government borrowing leading to lower interest rates.

• The reduction of government spending due to increased private investment.

• The exclusion of private investment due to increased government spending.

How can government policies promote technological advancement?

• By increasing interest rates.

• By decreasing government spending on education.

• By providing subsidies or tax credits for research and development.

• By increasing taxes on research and development.

What is the impact of producing more capital goods this year on next year's productive capacity?

• It decreases next year's productive capacity.

• It initially decreases then increases next year's productive capacity.

• It has no impact on next year's productive capacity.

• It increases next year's productive capacity.

Which policy is considered a supply-side policy to increase economic growth?

• Reducing the amount of physical capital per worker.

• Increasing income taxes.

• Decreasing subsidies for education.

• Deregulation to make it easier for firms to produce.