Fiscal Policy and Stimulus: Crash Course Economics

The video explores fiscal policy, a tool used by governments to manage economic fluctuations. It explains recessionary and inflationary gaps, and how expansionary and contractionary fiscal policies can address these issues. The video discusses Keynesian economics, highlighting the debate over fiscal policy's effectiveness, including concerns about deficit spending and crowding out. It also covers the multiplier effect, showing how government spending can stimulate the economy. The video concludes with a call for support for educational content.

What is a recessionary gap?

• When actual output exceeds potential output

• When actual output is below potential output

• When unemployment is low

• When inflation is high

Which of the following is a tool of expansionary fiscal policy?

• Increasing taxes

• Raising interest rates

• Decreasing government spending

• Increasing government spending

What is the main goal of contractionary fiscal policy?

• To increase consumer spending

• To reduce inflation

• To create more jobs

• To lower interest rates

What did classical economists believe about the economy's ability to self-correct?

• It only self-corrects during inflation

• It requires constant government intervention

• It can self-correct in the long run

• It never self-corrects

Who is credited with developing the theory of expansionary fiscal policy?

• David Ricardo

• John Maynard Keynes

• Milton Friedman

• Adam Smith

What is a potential downside of deficit spending?

• It lowers interest rates

• It increases private sector investment

• It reduces government debt

• It can lead to crowding out

What is 'crowding out' in the context of fiscal policy?

• When government spending decreases during a recession

• When private investment increases due to government spending

• When government borrowing leads to higher interest rates

• When government spending increases private spending

What is the multiplier effect?

• The increase in total spending resulting from an initial government spending

• The decrease in consumer spending due to higher taxes

• The effect of inflation on savings

• The impact of unemployment on GDP

Which type of government spending tends to have the highest multiplier?

• Military spending

• Spending on welfare and unemployment

• General tax cuts

• Spending on infrastructure

Why might tax cuts have a lower multiplier effect than government spending?

• Tax cuts are always saved

• Tax cuts only benefit the wealthy

• Tax cuts may be saved rather than spent

• Tax cuts increase government debt