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Questions and Answers
What does fiscal policy primarily focus on?
The term 'Fisc' in the context of fiscal policy refers to which of the following?
Which of the following is NOT a goal of fiscal policy?
What impact does fiscal policy have on businesses?
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Which component of fiscal policy directly relates to government spending?
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What is the main goal of fiscal policy as defined by Lipsey and Stenier?
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Which of the following is NOT an objective of fiscal policy?
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What characterizes automatic stabilizers in fiscal policy?
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What occurs when government expenditures exceed tax revenues in a given year?
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Which fiscal policy type entails active government decisions to adjust spending and taxes?
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In a scenario where government tax revenues are less than expenditures, the government is said to have a:
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What is the definition of expansionary fiscal policy?
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What is termed as the total amount of government bonds and interest payments outstanding?
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Study Notes
Fiscal Policy
- Fiscal policy is the government's approach to managing its revenue, spending, and debt to achieve specific economic objectives.
- The term "fisc" signifies treasury, making fiscal policy the management of government funds.
- Fiscal policy aims to influence a nation's economic activities.
Objectives of Fiscal Policy
- Full Employment: Achieving a scenario where everyone who wants to work can find a job.
- Price Stability: Keeping inflation under control, preventing drastic fluctuations in prices.
- Reduction of Economic Inequality: Decreasing the gap between the rich and the poor, promoting a more equitable distribution of wealth.
- Economic Development: Fostering growth in the economy, improving standards of living for all citizens.
Methods or Tools of Fiscal Policy
- Taxation Policy: The system used by the government to collect revenue through taxes.
- Government Expenditure Policy: The allocation of government funds for various programs, projects, and services.
- Public Debt Policy: Managing how the government borrows money and uses it for its different initiatives.
- Deficit Financing: Borrowing money to fund government spending when revenue is insufficient.
Automatic Stabilizers vs. Discretionary Fiscal Policy
- Automatic Stabilizers: Government programs that automatically adjust spending and taxes with economic fluctuations (like unemployment benefits rising during recessions).
- Discretionary Fiscal Policy: Conscious decisions made by the government to change spending or tax levels to achieve specific economic goals.
Budget Deficits, Surpluses, and the National Debt
- Budget Deficit: When government spending exceeds tax revenue, the difference is the deficit, which is financed by borrowing.
- National Debt: The total amount of government debt, including past and present borrowing.
- Budget Surplus: When government revenue exceeds spending, the difference is the surplus, often used to reduce the national debt.
- Balanced Budget: When government revenue and spending are equal for a specific year.
Expansionary and Contractionary Fiscal Policy
- Expansionary Fiscal Policy: Increasing government spending and/or decreasing taxes to stimulate the economy, leading to a larger budget deficit or smaller surplus.
- Contractionary Fiscal Policy: Decreasing government spending and/or increasing taxes to slow down inflation or reduce deficits, leading to a smaller deficit or larger surplus.
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Description
This quiz covers the fundamentals of fiscal policy, including its objectives like full employment, price stability, and economic development. Learn about the methods used in fiscal policy, such as taxation and government expenditure. Test your understanding of how fiscal policy influences a nation's economy.
