Government Macroeconomic Intervention Quiz

What is the main objective of government macroeconomic intervention?

• To reduce international trade

• To increase government revenue

• To generate increases in economic welfare

• To control population growth

Answer explanation

The main objective of government macroeconomic intervention is to generate increases in economic welfare, ensuring that the economy operates efficiently and benefits society as a whole.

Which of the following is NOT a method of government economic policy?

• Controlling Population

• Controlling Interest Rates

• Controlling Unemployment

• Controlling Inflation

Answer explanation

Controlling Population is not a method of government economic policy. The other options—Controlling Interest Rates, Unemployment, and Inflation—are direct tools used to manage the economy.

What are the two main types of economic policies?

• Fiscal and Monetary Policies

• Demand-Side and Supply-Side Policies

• Expansionary and Contractionary Policies

• Inflationary and Deflationary Policies

Answer explanation

The two main types of economic policies are Demand-Side and Supply-Side Policies. Demand-Side focuses on stimulating demand to boost economic activity, while Supply-Side aims to increase production and efficiency.

What does 'Price Stability' refer to?

• Zero inflation

• Constant price levels

• Lack of rapid inflation or deflation

• High inflation rates

Answer explanation

'Price Stability' refers to a situation where there is a lack of rapid inflation or deflation, meaning prices remain relatively stable over time. This is crucial for economic predictability and growth.

What is a budget deficit?

• When government spending is less than tax revenue

• When there is no government spending

• When government spending equals tax revenue

• When government spending is greater than tax revenue

Answer explanation

A budget deficit occurs when government spending exceeds tax revenue, meaning the government is spending more than it collects in taxes. This is why the correct answer is when government spending is greater than tax revenue.

What is the definition of 'National Debt'?

• The total tax revenue collected by a government

• The total amount of money a government has

• The amount of money a government owes

• The annual budget of a government

Answer explanation

'National Debt' refers to the total amount of money a government owes, typically resulting from borrowing to cover budget deficits. This distinguishes it from tax revenue or the government's total assets.

What is an automatic stabiliser?

• A tool to increase taxes

• A mechanism to stimulate aggregate demand

• A method to control inflation

• A type of fiscal policy

Answer explanation

An automatic stabiliser is a mechanism that automatically adjusts fiscal policy, such as taxes and government spending, to stimulate aggregate demand during economic downturns, helping to stabilize the economy.

Which type of tax increases as income increases?

• Regressive Tax

• Proportional Tax

• Progressive Tax

• Flat Tax

Answer explanation

A progressive tax increases as income rises, meaning higher earners pay a larger percentage. This contrasts with regressive taxes, which take a larger share from low-income earners, and proportional or flat taxes, which remain constant.

What is the main purpose of fiscal policy?

• To control the money supply

• To influence the level of aggregate demand

• To manage exchange rates

• To regulate interest rates

Answer explanation

The main purpose of fiscal policy is to influence the level of aggregate demand in the economy through government spending and taxation, which can stimulate or slow down economic activity.

What does 'Expansionary Fiscal Policy' aim to do?

• Stabilize prices

• Increase aggregate demand

• Reduce government spending

• Decrease aggregate demand

Answer explanation

Expansionary Fiscal Policy aims to increase aggregate demand by boosting government spending and cutting taxes, which stimulates economic activity and encourages consumer spending.