Which one of the following would be an example of loosening the Fiscal Policy?

A rise in the government budget deficit

Which one of the following is an example of fiscal policy having a direct supply-side effect?

Gov. spending on retraining to increase factor mobility

Which one of the following is most likely to reduce cyclical unemployment in the short run?

A reduction in the budget surplus

What is the difference between tax avoidance and tax evasion?

Evasion is illegal and it's the failure to declare income

What is Expansionary Fiscal Policy?

An increase in government spending and/or cut in taxation

Which one is most likely to increase employment and reduce a balance of payments surplus?

Increasing government expenditure

What are the instruments for Fiscal Policy?

Government spending and taxation

What can the government influence when using Fiscal Policy?

Influence the size of the circular flow of income

At point X, what is likely to move it to point B?

An increase in gov. spending and reduction in exchange rate

A cut in income tax rates could be considered...

Both a fiscal policy and a supply-side policy.

What's a Keynesian economist likely to do to stimulate recovery for an economy in recession?

Increase gov. spending financed by increased gov. borrowing

Low interest rates and high gov. spending with budget deficit = which policies?

Expansionary monetary and fiscal policy

What is progressive tax?

The proportion of income paid in tax rises as income rises

Aggregate demand may fall as a result of a decrease in

The government’s budget deficit.

Which one of fiscal policy measures would be most likely to increase aggregate demand?

Increase state retirement pensions and leave tax unchanged

When is the gov. most likely to use an expansionary fiscal policy to increase aggregate demand?

When cyclical unemployment is increasing

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Fiscal Policy

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Questions 20

Answers

1
Which one of the following would be an example of loosening the Fiscal Policy?
A fall in interest rates
A rise in the government budget deficit
A fall in the money supply
A rise in the rate of inflation
2
Which one of the following is an example of fiscal policy having a direct supply-side effect?
An increase in the money supply leading to greater output
Gov. spending on retraining to increase factor mobility
A reduction in interest rates boosting investment
A reduction in income tax boosting consumption
3
Which one of the following is most likely to reduce cyclical unemployment in the short run?
An increase in interest rates
A reduction in the budget deficit
A reduction in the budget surplus
An increase in the exchange rate
4
What is the difference between tax avoidance and tax evasion?
Avoidance is illegal and it's the failure to declare income
Evasion is illegal and it's the failure to declare income
5
What is Expansionary Fiscal Policy?
An initial reduction in taxes decreases incentive to work
Allows a reduction in the size of governments budget deficit
A decrease in government spending and/or rise in taxation
An increase in government spending and/or cut in taxation
6
If the economy grows, the government's budget position should automatically...
Worsen
Stay the same
Decrease with inflation
Improve
7
Which one is most likely to increase employment and reduce a balance of payments surplus?
A rise in the exchange rate
Increasing interest rates
Increasing the government’s budget surplus
Increasing government expenditure
8
What are the instruments for Fiscal Policy?
Government spending and taxation
Inflation
Interest rates and money supply
Quantitative Easing
9
What can the government influence when using Fiscal Policy?
Influence the borrowing costs for firms and households.
Influence the size of the circular flow of income
The government could influence structural unemployment
10
An economy is experiencing a budget deficit when....
G>T
G=T
G<T
11
At point X, what is likely to move it to point B?
An increase in gov. spending and reduction in exchange rate
An increase in interest rates and a reduction in exports
An increase in household saving and reduction in investment
An increase in imports and a reduction in exports
12
A cut in income tax rates could be considered...
Both a fiscal policy and a supply-side policy.
Both a monetary policy and a fiscal policy
Both a monetary policy and a supply-side policy
Neither a monetary policy nor a fiscal policy.
13
What's a Keynesian economist likely to do to stimulate recovery for an economy in recession?
Cutting government expenditure to balance its budget
Increase the money supply to maintain low interest rates
Increase taxes to finance increased government expenditure
Increase gov. spending financed by increased gov. borrowing
14
Low interest rates and high gov. spending with budget deficit = which policies?
Expansionary monetary and Contractionary fiscal
Contractionary monetary and fiscal policy
Contractionary monetary and Expansionary fiscal
Expansionary monetary and fiscal policy
15
What is progressive tax?
The proportion of income paid in tax rises as income rises
Proportion of income paid tax stays the same as income rises
The proportion of income paid in tax falls as income rises
16
Aggregate demand may fall as a result of a decrease in
The government’s budget deficit.
Imports.
The government’s budget surplus.
Savings relative to investment.
17
In the short term, contractionary fiscal policy is most likely to cause...
An increase in the rate of inflation.
A rise in unemployment.
A deterioration in current account on balance of payments.
A fall in export volumes.
18
Which one of fiscal policy measures would be most likely to increase aggregate demand?
Reducing welfare payments and leaving taxation unchanged
Reduce gov. spending and increase taxation by equal amounts
Increase indirect taxes to maintain the same revenue
Increase state retirement pensions and leave tax unchanged
19
When is the gov. most likely to use an expansionary fiscal policy to increase aggregate demand?
When cyclical unemployment is increasing
When the long-run trend rate of economic growth is too low
When there is a positive output gap
When there is a high level of structural unemployment
20
Which policy is most likely to reduce both inflation and the balance of payments deficit?
A fall in government spending
A reduction in the exchange rate
A decrease in the rate of income tax
A cut in interest rates

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