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Fiscal Policy and Economic Stabilization Quiz

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Fiscal Policy and Economic Stabilization Quiz

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Questions and Answers

What is the primary purpose of fiscal policy?

Regulating interest rates

Increasing inflation levels

Controlling trade policies

Affecting aggregate demand (correct)

What does a 'Balanced' fiscal policy signify?

Government spending is unrelated to taxation

Government spending surpasses taxation

Government spending equals taxation (correct)

Government spending is less than taxation

Which type of fiscal policy involves government spending exceeding taxation?

Expansionary (correct)

Monetary

Balanced

Contractionary

How does fiscal policy aim to achieve full employment?

By increasing government spending (A) Signup and view all the answers

What is the key economic concept influenced by fiscal policy to achieve price stability?

Aggregate demand (D) Signup and view all the answers

What is the main objective of fiscal policy?

Achieving higher economic growth (C) Signup and view all the answers

In which type of fiscal policy does government spending exceed taxation?

Expansionary (A) Signup and view all the answers

What is a characteristic of contractionary fiscal policy?

Increasing taxation (C) Signup and view all the answers

How does fiscal policy impact aggregate demand?

Via government spending and taxation (D) Signup and view all the answers

Which situation would likely lead to the use of expansionary fiscal policy?

Low inflation and high unemployment (B) Signup and view all the answers

Study Notes

Fiscal Policy

Fiscal policy is the prime lever of economic stabilization policy, aiming to achieve higher economic growth, full employment, and price stability.
It influences aggregate demand in the economy to achieve these goals.

Types of Fiscal Policy

Balanced Fiscal Policy: Government spending (G) is equal to taxation (T), i.e., G = T.
Expansionary Fiscal Policy: Government spending (G) is greater than taxation (T), i.e., G > T. This type of policy is used to stimulate economic growth.
Contractionary Fiscal Policy: Government spending (G) is less than taxation (T), i.e., G < T. This type of policy is used to reduce aggregate demand and combat inflation.

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Description

Test your knowledge on fiscal policy, the prime lever of economic stabilization influencing aggregate demand, economic growth, full employment, and price stability through government spending and taxation manipulation.