OCR Eco: Chap 6 Fiscal policy

During an economic downturn, what happens to tax revenues and expenditure on unemployment benefits?

• Tax revenues increase, expenditure on unemployment benefits decreases

• Tax revenues decrease, expenditure on unemployment benefits increases

• Both tax revenues and expenditure on unemployment benefits increase

• Both tax revenues and expenditure on unemployment benefits decrease

What is an example of an automatic stabilizer?

• Discretionary fiscal policy

• National debt

• Progressive taxation

• Crowding out

What does the Laffer Curve illustrate?

• Relationship between tax rates and tax revenue

• Impact of economic fluctuations on the budget balance

• Long-term balance of the budget

• Total amount of money owed by the government

What happens to tax revenue at very low tax rates according to the Laffer Curve?

• Tax revenue decreases

• Tax revenue remains constant

• Tax revenue increases

• Tax revenue becomes zero

What does the marginal tax rate apply to?

• Total taxable income

• Next additional unit of income

• Total amount of money owed by the government

• Relationship between tax rates and tax revenue

When does a budget deficit occur?

• When government revenue exceeds expenditure

• When government expenditure equals revenue

• When government expenditure exceeds revenue

• When government revenue equals expenditure

Explain what fiscal policy is and how it is used to influence the overall economy. Provide examples to support your answer.

• Fiscal policy is the use of government spending and taxation to influence the economy.

• Fiscal policy is the regulation of interest rates by the central bank.

• Fiscal policy is the control of money supply by the government.

• Fiscal policy is the management of exchange rates by the government.

What is capital expenditure aimed at?

• Enhancing short-term economic growth

• Enhancing long-term economic growth

• Reducing government debt

• Increasing government revenue

What is the role of indirect taxes?

• Collected by individuals

• Collected by businesses

• Collected by government agencies

• Ultimately paid by consumers but collected by businesses

What does the cyclical budget position refer to?

• The long-term underlying balance of the budget

• The impact of economic fluctuations on the budget balance

• The total amount of money owed by the government

• Deliberate changes in government expenditure and taxation