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12 Questions

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2.03 Fiscal Policy Quiz

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Questions and Answers

What is the likely impact of fiscal policy on the future course of the economy in the scenario provided?

Neutral

Uncertain

Expansionary (correct)

Contractionary

Which of the following best describes a disadvantage of using fiscal policy as a short-run economic tool?

Fiscal policy has no significant impact on the economy

Indirect taxes are difficult to implement and have a delayed impact

Capital spending plans take a long time to formulate and implement (correct)

Direct taxes have very small expectational effects and long lead times

What does the economist's statement about fiscal deficits and tax cuts reflect?

Fisher effect

Ricardian equivalence (correct)

Keynesian economics

Money neutrality

In the scenario provided, what is the effect of Country A's large fiscal deficit on private sector investment?

Crowding out effect Signup and view all the answers

Which of the following is a potential drawback of using income tax cuts to stimulate GDP growth during a recession?

Consumers may decide to increase savings. Signup and view all the answers

Why might a country with an independent central bank choose an expansionary monetary policy over a discretionary fiscal policy during a recession?

Monetary policy can be implemented more rapidly. Signup and view all the answers

What effect can an extended period of GDP growth have on a country's budget balance?

It will change a substantial surplus into a slight deficit. Signup and view all the answers

Which of the following is most likely to be considered a type of direct tax?

Property taxes on real estate Signup and view all the answers

What is the main limitation of fiscal policy in stabilizing aggregate demand?

The government's inability to borrow during recessions due to investor preference for corporate debt. Signup and view all the answers

How does monetary policy differ from fiscal policy?

Maintain price stability. Signup and view all the answers

Which advantage of using a specific fiscal policy tool is highlighted in the text?

Capital spending programs are one of the fastest ways to provide fiscal stimulus. Signup and view all the answers

What is an advantage of automatic stabilizers over discretionary fiscal policy?

Have a greater impact on GDP per unit of fiscal expenditure. Signup and view all the answers