Fiscal Policy Quiz

What is fiscal policy primarily concerned with?

• Control of money supply

• Government spending and taxation

• Regulation of financial institutions

• Exchange rate management

Which of the following is an example of expansionary fiscal policy?

• Increasing taxes

• Decreasing government spending

• Increasing government spending

• Selling government bonds

What is the primary goal of contractionary fiscal policy?

• Increase inflation

• Reduce budget deficits

• Decrease aggregate demand

• Stimulate economic growth

Which of the following can lead to a budget deficit?

• Government spending exceeds revenue

• Revenue exceeds government spending

• Balanced budget

• Surplus funding of public projects

What is a potential long-term effect of persistent budget deficits?

• Increased public investment

• Lower interest rates

• Higher levels of national debt

• Economic recession

How does an increase in government spending during a recession theoretically impact the economy?

• It decreases aggregate demand.

• It increases aggregate demand.

• It has no effect on inflation.

• It reduces unemployment immediately.

If a government decides to cut taxes to stimulate the economy, what is a possible negative consequence?

• Increased public services

• Worsening budget deficits

• Higher disposable income

• Increased investment

Why might a government choose to implement contractionary fiscal policy during an economic boom?

• To stimulate further growth

• To prevent overheating and inflation

• To increase unemployment

• To raise consumer confidence

Which of the following is a consequence of high levels of national debt?

• Reduced interest payments

• Increased flexibility in fiscal policy

• Higher interest rates

• Increased public investment

In what situation might a government prioritize reducing the budget deficit over stimulating economic growth?

• During a recession

• During a period of high inflation

• When unemployment is low

• When consumer confidence is high