term fiscal PG chap 7

The government of Country X decides to increase its public spending significantly to boost economic growth. However, private investment is reported to have declined sharply. Which of the following best explains this phenomenon?

• Supply Side Theory

• Laffer Curve Effect

• Crowding Out Effect

• Keynesian Multiplier Effect

According to the Laffer Curve, when tax rates are too high:

• Tax revenue increases exponentially.

• Tax revenue decreases as economic activity declines.

• Tax evasion becomes impossible.

• Government debt automatically decreases.

Country Y introduces a balanced-budget policy during an economic recession. What is the most likely consequence of this policy?

• Increased economic growth

• Reduced fiscal deficit

• Higher unemployment rates

• Improved investor confidence

A country is heavily reliant on foreign loans to finance its budget deficit. What is the most significant risk associated with this approach?

• Increased foreign direct investment

• Enhanced economic growth

• Vulnerability to currency depreciation

• Reduction in export competitiveness

Which of the following fiscal policies is most likely to reduce income inequality?

• Raising indirect taxes on essential goods

• Reducing corporate tax rates

• Increasing progressive income taxes

• Cutting social welfare programs

Crowding out is most likely to occur when:

• The government implements tax cuts during an economic boom.

• The central bank lowers interest rates drastically.

• Government borrowing competes with private sector borrowing.

• Private investment increases due to improved economic confidence.

If a nation's debt-to-GDP ratio continues to rise over time, this most likely indicates:

• Sustainable economic growth.

• Effective fiscal consolidation.

• Potential risks of fiscal insolvency.

• Decreasing government borrowing.

A government aims to boost economic growth through expansionary fiscal policy. Which of the following is NOT a typical measure?

• Reducing taxes

• Increasing public spending

• Enhancing welfare programs

• Implementing higher interest rates