Fiscal policy and its implications. - One Line Questions

1. A government increases its spending by $100 billion. If the multiplier is 2, what is the total impact on aggregate demand? — $200 billion
2. If the marginal propensity to save (MPS) is 0.2, what is the simple spending multiplier? — 4
3. The concept of 'twin deficits' refers to the simultaneous occurrence of: — A budget deficit and a trade deficit
4. A decrease in taxes, holding government spending constant, would likely lead to: — An increase in aggregate demand
5. Which of the following is an example of an automatic stabilizer? — Unemployment benefits and progressive income taxes
6. A higher marginal propensity to consume (MPC) generally leads to: — A larger fiscal multiplier
7. The 'paradox of thrift' suggests that if everyone tries to save more during a recession: — Aggregate demand will decrease, potentially worsening the recession
8. The multiplier effect in fiscal policy implies that an initial change in government spending or taxes can lead to: — A larger change in aggregate demand
9. Which of the following best describes the 'expenditure approach' to measuring fiscal policy impact? — Analyzing changes in government purchases and transfer payments
10. Discretionary fiscal policy refers to: — Deliberate changes in government spending and taxation enacted by policymakers
11. Which economic school of thought most strongly advocates for the use of active fiscal policy to manage aggregate demand? — Keynesian Economics
12. Recognition lag refers to the time it takes for policymakers to: — Recognize that an economic problem exists
13. Expansionary fiscal policy aims to: — Increase aggregate demand by increasing government spending or reducing taxes
14. According to the Laffer Curve, if tax rates are too high, a reduction in tax rates could potentially: — Increase tax revenue
15. Which of the following is a direct fiscal policy action to reduce unemployment? — Increasing government spending on job creation programs
16. Fiscal policy's impact on aggregate supply is primarily associated with: — Supply-side economics
17. What is the main implication of the time inconsistency problem for fiscal policy? — Commitments to certain fiscal rules can be beneficial
18. The concept of 'political business cycles' relates to fiscal policy being influenced by: — The electoral cycle and attempts to boost popularity
19. Monetarist views on fiscal policy generally suggest that: — Fiscal policy is largely ineffective and can be destabilizing
20. The Laffer Curve illustrates the relationship between: — Tax rates and tax revenue
21. A budget deficit occurs when: — Government spending exceeds tax revenue
22. A budget surplus occurs when: — Tax revenue exceeds government spending
23. Ricardian equivalence suggests that government deficit financing through borrowing: — Has no effect on aggregate demand because individuals anticipate future tax increases
24. The concept of 'functional finance' suggests that fiscal policy should be evaluated based on its: — Effectiveness in achieving full employment and price stability
25. During a severe recession, an appropriate fiscal policy response would be: — Decrease taxes and increase government spending
26. Crowding out is a potential implication of fiscal policy where: — Increased government borrowing raises interest rates, reducing private investment
27. Which of the following is a potential negative implication of sustained government budget deficits? — Increased national debt and potential future tax burdens
28. Supply-side fiscal policies primarily focus on: — Enhancing aggregate supply through tax cuts and deregulation
29. A tax cut on corporate profits is an example of a fiscal policy aimed at potentially: — Increasing investment and aggregate supply
30. Fiscal policy's role in managing inflation during periods of overheating economy involves: — Decreasing government spending and raising taxes
31. A government aims to reduce its national debt. Which fiscal policy would be most consistent with this goal? — Achieving a budget surplus through spending cuts or tax increases
32. Fiscal policy can be used to address market failures by: — Providing public goods and correcting externalities
33. Which of the following is a tool of fiscal policy? — Government spending and taxation
34. Which of the following is a characteristic of a 'high-powered money' injection through fiscal policy? — It directly increases the money supply
35. The concept of the balanced budget multiplier suggests that an equal increase in government spending and taxes will: — Lead to an increase in GDP
36. What is the primary implication of a large and persistent budget deficit for future generations? — Increased burden of debt servicing and potentially higher future taxes
37. Keynesian fiscal policy emphasizes the role of government intervention to: — Stabilize aggregate demand, especially during recessions
38. The size of the fiscal multiplier depends on the: — All of the above
39. If the government increases spending on infrastructure, this is an example of: — Fiscal policy
40. The impact of fiscal policy on aggregate demand is generally considered to be: — More direct and immediate than monetary policy
41. A government that consistently runs budget deficits is increasing its: — National debt
42. Contractionary fiscal policy is typically used to combat: — Inflation
43. Lags in fiscal policy implementation can include: — Recognition lag, decision lag, and implementation lag
44. A fiscal policy that aims to reduce income inequality might involve: — Progressive taxation and increased social welfare programs
45. Automatic stabilizers are fiscal policy elements that: — Automatically work to moderate business cycle fluctuations
46. The effectiveness of fiscal stimulus during a liquidity trap is: — Significantly enhanced
47. The effectiveness of fiscal policy can be limited by: — The crowding-out effect and policy lags
48. The impact of government borrowing on interest rates is a key consideration in the debate about: — Crowding out
49. What is the primary objective of fiscal policy? — To control inflation and stimulate economic growth
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