Understanding Fiscal Policy

What are the two main components of fiscal policy?

• Interest rates and inflation

• Government spending and taxes

• Government spending and monetary policy

• Taxes and interest rates

Which type of fiscal policy involves automatic stabilizers?

• Progressive fiscal policy

• Monetary policy

• Non-discretionary fiscal policy

• Discretionary fiscal policy

During a recession, what action might the government take to boost the economy?

• Decrease government spending

• Increase taxes

• Decrease interest rates

• Increase government spending

How can decreasing taxes help during a recession?

• It slows down the economy

• It reduces government revenue

• It decreases aggregate demand

• It increases disposable income and consumption

What is the effect of increasing taxes during an inflationary period?

• It decreases disposable income and consumption

• It boosts aggregate demand

• It increases disposable income

• It speeds up the economy