Fiscal Policy Assessment Questions

Which of the following is NOT a primary source of federal revenue for the US government?

• Income taxes

• Corporate taxes

• Sales taxes

• Payroll taxes

In the US tax system, which of the following taxes is typically considered progressive?

• A) Income tax

• B) Sales tax

• C) Payroll tax

• D) Corporate tax

As your income increases, what happens to your tax rate?

• Your marginal tax rate increases

• Your average tax rate increases

• Both your marginal and average tax rates increase

• Neither your marginal tax rate nor your average tax rate increases.

Which of the following is a significant factor contributing to the growth of the US national debt?

• Decreasing interest rates

• Increasing federal budget surpluses

• Persistent budget deficits

• Decreasing healthcare costs

The annual shortfall in government revenues compared to government spending is called what?

• Deficit

• Debt

• Interest

• Crowding out

What is the primary difference between discretionary spending and mandatory spending in the US federal budget?

• A) Discretionary spending is determined annually through the appropriations process, while mandatory spending is set by existing laws.

• B) Mandatory spending can be changed each year, while discretionary spending is fixed.

• C) Discretionary spending includes interest on the debt, while mandatory spending does not.

• D) Mandatory spending only includes defense expenditures, while discretionary spending covers all other areas.

What is “crowding out” in the context of fiscal policy?

• A decrease in private investment due to increased government borrowing

• An increase in private investment due to decreased government spending

• A situation where government spending has no impact on private investment

• An increase in private savings due to higher interest rates

Which of the following is an example of a supply shock?

• A) An unexpected drop in consumer spending

• B) A natural disaster that disrupts production

• C) An increase in government spending

• D) A sudden change in tax policy

Fiscal policy is generally more effective in addressing which type of economic issue?

• A) Long-term economic growth

• B) Short-term downturns in aggregate demand

• C) Structural unemployment

• D) Supply-side constraints

Which of the following best defines fiscal policy?

• The use of government spending and tax policies to influence economic conditions

• The regulation of interest rates to control inflation

• The management of the money supply by the central bank

• The establishment of laws and regulations to protect consumers