Crash Course Economics: Fiscal Policy Quiz

What is a recessionary gap?

• When inflation is rising

• When output is above potential

• When output is below potential

• When interest rates are zero

What is the goal of expansionary fiscal policy?

• Increase output and reduce unemployment

• Reduce taxes on imports

• Stop the business cycle

• Control monopolies

What is one way the government uses expansionary fiscal policy?

• Raising taxes

• Increasing spending

• Selling more exports

• Limiting wages

What was the main purpose of the 2009 stimulus bill?

• Raise gas prices

• Boost the economy and create jobs

• Start new banks

• Increase inflation

What is Keynesian economics known for supporting?

• Free markets only

• Government spending during downturns

• Only tax cuts

• Austerity policies

What is the multiplier effect?

• When spending causes prices to rise

• When inflation increases twice as fast

• When one dollar of spending leads to more total spending

• When tax cuts multiply savings

Why might some economists dislike deficit spending?

• It increases government debt

• It causes interest rates to fall

• It hurts exports

• It makes consumers too rich

What is crowding out?

• When taxes rise too quickly

• When government borrowing makes it harder for private businesses to borrow

• When too many people enter a market

• When exports replace imports

What did Europe do after the 2008 crisis?

• Cut spending and raised taxes (austerity)

• Created a new currency

• Passed a large stimulus

• Increased factory subsidies

Which type of spending tends to have the highest multiplier?

• Military expansion

• Welfare and unemployment aid

• Corporate tax cuts

• Buying gold