Crash Course Fiscal Policy

Which of the following best describes a recessionary gap?

• A situation where actual output exceeds potential GDP.

• A period of high inflation and low unemployment.

• A situation where the real GDP is lower than the potential GDP at the full employment level.

• A time when the economy is growing at its maximum sustainable rate.

What is the primary function of fiscal policy?

• To regulate the money supply and interest rates.

• To adjust government spending and tax rates to influence a nation's economy.

• To control international trade agreements.

• To manage the stock market.

Which action is characteristic of expansionary fiscal policy?

• Decreasing government spending.

• Raising taxes.

• Increasing government spending.

• Reducing the money supply.

What is the goal of contractionary fiscal policy?

• To stimulate economic growth during a recession.

• To increase consumer spending and boost the economy.

• To reduce the money supply and ultimately the spending in a country.

• To fund new infrastructure projects.

What economic policy did John Maynard Keynes suggest to speed up the economy?

• Decreasing government spending

• Increasing interest rates

• Expansionary fiscal policy

• Reducing taxes on the wealthy

When does crowding out become a problem, according to Keynesian economists?

• When the economy is in a recession

• When the economy is operating at full capacity

• When interest rates are very low

• When there is high consumer spending

How did the US economy perform compared to the Eurozone economy after 2011, when the US implemented stimulus and the Eurozone pursued austerity?

• Both economies experienced similar growth rates.

• The US economy grew, and unemployment fell, while the Eurozone's GDP shrank, and unemployment rose.

• The Eurozone economy grew, and unemployment fell, while the US's GDP shrank, and unemployment rose.

• Both economies experienced a decline in GDP and an increase in unemployment.

What is the approximate government spending multiplier when the economy is in a recession, compared to when it is already booming?

• Around 1 when booming, around 2 when in recession.

• Around 2 when booming, around 1 when in recession.

• Around 0.5 when booming, around 1 when in recession.

• Around 1.5 when booming, around 0.5 when in recession.