Introduction to Fiscal Policy: Understanding Expansionary and Contractionary Policies

The video provides an introduction to fiscal policy, explaining its role in managing economic activity through changes in taxes, expenditure, and borrowing. It distinguishes between macro and microeconomic aspects, focusing on managing output gaps and productive capacity. The video covers expansionary and contractionary fiscal policies, illustrating their impact on economic growth and slowdown. It emphasizes the importance of understanding these concepts to effectively analyze fiscal policy's role in economic management.

What is the primary goal of fiscal policy?

• To control inflation

• To manage the level of economic activity

• To regulate interest rates

• To increase exports

Which of the following is a macroeconomic impact of fiscal policy?

• Regulating monopolies

• Influencing consumer preferences

• Managing output gaps

• Providing subsidies to specific industries

What is a key microeconomic consequence of fiscal policy?

• Controlling inflation

• Increasing productive capacity

• Providing public and merit goods

• Reducing national debt

What does a balanced budget imply in terms of fiscal policy?

• Taxes exceed expenditure

• No government borrowing

• Expenditure exceeds taxes

• Expenditure equals taxes

During an economic downturn, what type of fiscal policy is typically used?

• Neutral fiscal policy

• Expansionary fiscal policy

• Monetary policy

• Contractionary fiscal policy

What is the effect of a budget surplus on economic growth?

• It increases economic growth

• It has no effect on economic growth

• It reduces economic growth

• It stabilizes economic growth

When is contractionary fiscal policy typically implemented?

• During a recession

• When output gaps are negative

• During periods of high unemployment

• When positive output gaps are large

What is a positive output gap?

• When capacity exceeds actual output

• When actual output equals capacity

• When actual output is less than capacity

• When actual output exceeds capacity

What is the main aim of expansionary fiscal policy?

• To decrease government spending

• To increase economic activity

• To increase taxes

• To reduce inflation

How does fiscal policy help in reducing economic variability?

• By controlling inflation

• By managing output gaps

• By stabilizing interest rates

• By increasing exports