Demand Management - Monetary & Fiscal Policy Quiz

What is fiscal policy primarily used for in the short term?

• To manage aggregate demand

• To control inflation

• To increase exports

• To reduce government spending

What is the purpose of reducing corporate taxes?

• To decrease business profits

• To discourage investment

• To boost business profits

• To reduce government revenue

Which of the following is a mechanism of expansionary fiscal policy?

• Decrease in government spending

• Increase in government spending

• Increase in taxes

• Reduction in exports

What is the effect of a deflationary gap on the economy?

• It causes inflation

• It leads to unemployment

• It increases exports

• It reduces government revenue

What does the multiplier effect in reverse lead to?

• Higher income and increased consumption

• Lower income and further decreases in consumption

• Increased government spending

• Higher inflation rates

What are automatic stabilizers?

• Mechanisms that require government intervention

• Mechanisms that help smooth out fluctuations without explicit intervention

• Policies that increase government spending

• Strategies to reduce taxes

What happens to unemployment benefits during an economic boom?

• More people claim benefits

• Fewer people claim benefits

• Benefits remain unchanged

• Benefits increase

What is a Deflationary (Recessionary) Gap?

• When aggregate demand exceeds supply

• When aggregate demand is less than required for full employment

• When supply exceeds demand

• When demand and supply are equal

What is an Inflationary Gap?

• When aggregate demand is less than supply

• When aggregate demand exceeds the level for full employment

• When supply exceeds demand

• When demand and supply are equal

What is the role of automatic stabilizers in economic fluctuations?

• To increase government intervention

• To manage short-term economic fluctuations

• To decrease taxes

• To increase aggregate demand