Fiscal Policy and Economic Concepts Quiz

Which of the following best defines fiscal policy?

• Policies that control the money supply and interest rates

• Government use of spending and taxation to influence aggregate demand

• Measures to control inflation through central bank independence

• The regulation of labour markets to increase productivity

According to Keynesian economists, in a deep recession, which of the following is the most appropriate policy response?

• Increase interest rates to encourage savings

• Cut government spending to reduce budget deficits

• Increase taxes to reduce inflationary pressure

• Increase government spending to stimulate aggregate demand

In a Neo-Classical long-run aggregate supply (LRAS) diagram, what is the shape of the LRAS curve and why?

• Downward sloping because of sticky prices

• Upward sloping due to wage rigidities

• Vertical because output is determined by supply-side factors

• Horizontal because prices are fixed in the long run

Which of the following is NOT typically considered a supply-side policy?

• Deregulation of markets

• Investment in education

• Reduction in interest rates

• Reduction in income tax to increase work incentives

Which of the following is a potential side effect of expansionary fiscal policy?

• Increase in unemployment

• Demand-pull inflation

• Reduced budget deficit

• Appreciation of the currency

What effect is most likely in the short run if a central bank significantly raises interest rates?

• Increase in consumer borrowing

• Fall in aggregate demand

• Decrease in exchange rate

• Surge in investment spending

In a Keynesian AS curve diagram, what happens to output when AD increases in the horizontal section of the curve?

• Output remains constant, prices rise

• Output increases without inflation

• Output decreases due to inflation

• Output and prices rise equally

Which of the following best explains crowding out in relation to fiscal policy?

• Higher taxes reducing incentives to work

• Government borrowing pushing up interest rates, reducing private investment

• Higher government spending reducing exports

• Increases in the money supply causing inflation

Which of the following is a product market supply-side policy?

• Minimum wage legislation

• Cutting corporation tax

• Vocational training programmes

• Trade union reforms

What is a key difference between fiscal and monetary policy in terms of implementation?

• Monetary policy is usually faster to implement

• Fiscal policy does not affect inflation

• Monetary policy involves changes in taxation

• Fiscal policy always leads to crowding out