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WorksheetsAUG 25: ECO 1200 FE MCQ REVISION
Total questions: 15
Worksheet time: 8mins
What is the most likely effect of a contractionary fiscal policy on a budget deficit?
The budget deficit will increase
It will result in a trade deficit
It will lead to a trade surplus
The budget deficit will decrease
The projected budget deficit for Year 1 was $15 million. However, as the year progressed, there was an improvement in economic conditions, leading to an increase in actual revenue by $15 million and a decrease in actual expenditure by $5 million. The budget forecast for Year 2 anticipates a surplus of $5 million. Based on this information, the projected budget for Year 2 can be classified as ____________.
reflecting a surplus
indicative of a deficit
contractionary in nature
expansionary in nature
Which of the following best describes an expansionary fiscal policy?
Cutting public sector wages to reduce overall government expenditure
A reduction in government spending and an increase in taxes to lower the budget deficit
An increase in government spending and/or a decrease in taxes aimed at stimulating economic activity
Achieving a budget surplus by raising tax rates
As a person's income (Y) increases, what typically happens to the demand for money?
It decreases, since individuals tend to save more
It decreases, as people are more inclined to invest in bonds instead
It stays the same, as there is no direct relationship between income and money demand
It increases, as more money is required to carry out a higher volume of transactions
Why do critics argue that active monetary and fiscal policies might destabilize the economy?
Because policymakers tend to prioritize long-term growth while overlooking short-term economic changes
Because such policies often face delays in implementation, they may take effect after economic conditions have already shifted
Because active policies automatically adjust interest rates, making government involvement redundant
Because government intervention consistently results in lower inflation
When an economy faces a drop in aggregate demand, which of the following automatic stabilizers is most likely to be activated?
Discretionary government spending would likely be reduced
Welfare payments would rise, helping to boost household spending
Tax revenues would rise, causing a decline in household spending
Tax revenues would rise, leading to reduced government expenditure
What does the crowding-out effect refer to?
When reduced government spending results in lower interest rates and increased private investment
When increased private sector spending causes a reduction in government expenditure
When private firms borrow less, causing interest rates to fall and government investment to rise
When increased government spending leads to higher interest rates, which in turn reduces private investment
What is the likely consequence of the federal government running a consistent budget deficit over several years?
The national debt will grow as the government continues to borrow funds
Government tax revenues will rise sharply
The government will eliminate its debt entirely through privatization
The national debt will decline
According to the Theory of Liquidity Preference, how does a decline in interest rates affect borrowing and investment?
It causes an immediate drop in aggregate demand
It lowers the cost of borrowing, encouraging more investment
It raises the cost of borrowing, which reduces investment
It does not affect borrowing costs, so investment remains unchanged
In which situation would a government most likely implement contractionary fiscal policy?
When the central bank wants to lower interest rates
When the government wants to increase public sector wages
When the economy is growing too quickly, and inflation is rising
When the economy is in a recession and unemployment is high
The multiplier effect suggests that an increase in government spending ____________.
will directly increase the interest rate and crowd out private investment
will only affect income in the long run, with no short-term impact on demand
will have no effect on overall economic output
will lead to a more than proportional increase in aggregate demand
If the marginal propensity to consume (MPC) is 0.8, the value of the multiplier is ____________.
1.25
2.5
5
4
Among the following measures, the most effective in combating inflation and helping the economy stabilize would be ____________.
reducing the cash reserve requirements for banks
selling government securities in the open market
lowering the discount rate for borrowing from the central bank
acquiring government securities in the open market
Which of the following best defines public debt?
The total debt owed by the federal government to foreign governments and international organizations
The debt held by private citizens, businesses, and financial institutions within the country
The total debt the government owes to both domestic and foreign creditors, including individuals, institutions, and other countries
The total amount of money the federal government owes to other nations
Which of the following was a major consequence of the Industrial Revolution?
The decline of urbanization and factory-based work
A shift from agricultural to industrial economies
A decline in the use of machines for production
A decrease in global trade and commerce
