FISCAL POLICY

1. What is the definition of fiscal policy?

• Policies on controlling money supply and interest rates

• Policies that involve government taxation and spending to influence the economy

• Policies that involve regulation of banking institutions

• Policies to control labor force participation

Which of the following is a fiscal policy measure aimed at reducing a budget deficit?

• Increasing government spending

• Cutting taxes

• Reducing government spending and increasing taxes

• Increasing subsidies to businesses

What does a government do when it adopts an expansionary fiscal policy?

• It reduces government spending and increases taxes

• It cuts taxes and increases government spending

• It increases taxes and reduces government spending

• It raises interest rates

How can fiscal policy help achieve macroeconomic aims such as low unemployment?

• By increasing taxes on income and businesses

• By increasing government spending on infrastructure and social programs

• By reducing public investment in the economy

• By limiting public sector wages

Which of the following is an effect of fiscal policy on government macroeconomic aims?

• It can lead to changes in aggregate demand

• It has no impact on inflation rates

• It can eliminate government debt

• It has no impact on unemployment

What is one of the key objectives of fiscal policy?

• To stabilize inflation through control of the money supply

• To balance the government’s budget by reducing expenditures

• To influence the level of aggregate demand through taxation and spending changes

• To control wages and salaries in the private sector

How does a government calculate the size of a budget deficit or surplus?

• By measuring inflation rates

• By comparing government spending to government revenue

• By adjusting interest rates and taxes

• By comparing the GDP growth rate to employment levels

Which of the following is an example of government spending?

• Collecting taxes from citizens

• Building a new highway

• Selling government bonds

• Setting interest rates

What happens when a government lowers taxes?

• People have less money to spend

• People have more money to spend

• There is no change in people’s spending

• The economy automatically slows down

A government has total revenue of $500 billion and total expenditures of $600 billion. What is the size of the budget deficit?

• $100 billion surplus

• $100 billion deficit

• $1,100 billion deficit

• $500 billion surplus