(6.1) Fiscal Policy

What does fiscal policy refer to?

• The federal government's use of spending and taxes to stabilize the economy

• The federal government's use of monetary policy to control inflation

• The federal government's regulation of trade and tariffs

• The federal government's management of foreign relations

What is the primary goal of fiscal policy?

• To increase exports

• To stabilize the economy

• To reduce government size

• To promote technological innovation

What are automatic stabilizers?

• Decisions made by Congress

• Built into the economy and work automatically

• Require active decision-making

• Only function during expansions

What happens to income and spending during expansions?

• They decrease

• They remain constant

• They increase, which can lead to inflation

• They are unaffected by economic conditions

Which of the following is a result of automatic stabilizers during recessions?

• Increase in taxes

• Decrease in government spending

• Increase in government spending

• No change in economic policy

What is the effect of a progressive income tax system on spending during a recession?

• Spending decreases

• Spending increases

• Spending remains the same

• Spending is eliminated

What is required for discretionary fiscal policy to take effect?

• Immediate response to economic changes.

• Agreement on actions and implementation.

• Automatic adjustment to the economy.

• No action is needed.

If and economy experiences a dramatic rise in prices, which fiscal policy action could be taken?

• Selling securities on the open market
• Raising interest rates
• Reducing government spending
• Raising reserve requirements