The Economic Domino Effect

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Which factor can have a significant impact on an economy?

The economic decisions of households

The investment decisions made by corporations

The decisions made by governments

All of the above (correct)

What is the main reason why the decisions made by governments can have an enormous impact on economies?

Governments employ a significant proportion of the population (correct)

Governments are the largest borrowers in world debt markets

Governments have the power to influence monetary policy

Governments have the power to influence fiscal policy

What does monetary policy refer to?

Government's decisions about taxation and spending

Central bank activities that influence the quantity of money and credit in an economy (correct)

Government's decisions about borrowing and spending

Government's decisions about employment and investment

What does fiscal policy refer to?

Government's decisions about taxation and spending Signup and view all the answers

Which sector of the economy is responsible for a significant proportion of spending?

Government Signup and view all the answers

What is one reason why individual corporations rarely affect large economies on their own?

They have a negligible impact on the wider economy Signup and view all the answers

What can lead to an increase in employment, investment, and profits?

Households consuming more and saving less Signup and view all the answers

What is one way in which central banks can implement monetary policy?

By influencing the quantity of money and credit in an economy Signup and view all the answers

What do governments express their policies through?

Borrowing and spending activities Signup and view all the answers

What do governments normally employ a significant proportion of in most developed economies?

The population Signup and view all the answers

Which one of the following best defines government revenue?

Taxes and other payments collected by the government Signup and view all the answers

What is the purpose of measuring the share of a country's output gathered by the government through taxes and related items?

To assess the extent of government involvement in the economy Signup and view all the answers

Which of the following is NOT considered as part of government revenue?

Transfer payments to taxpayers Signup and view all the answers

What has been the trend for taxes on incomes and profits for OECD member countries since the mid-1990s?

They have remained fairly constant Signup and view all the answers

Which country has the highest taxes on goods and services as a percentage of GDP?

Denmark Signup and view all the answers

What is the purpose of fiscal policy in a recession?

To stabilize the economy Signup and view all the answers

What is the budget surplus or deficit?

The difference between government revenue and expenditure Signup and view all the answers

What are automatic stabilizers in fiscal policy?

Government spending on social insurance and unemployment benefits Signup and view all the answers

How do automatic stabilizers reduce output fluctuations?

By providing stability to the economy in response to shocks Signup and view all the answers

What distinguishes automatic stabilizers from discretionary fiscal policies?

Automatic stabilizers are automatic and do not require policy makers' intervention, while discretionary fiscal policies do Signup and view all the answers

Which of the following is NOT a goal of both monetary and fiscal policy?

Accelerating economic growth Signup and view all the answers

What is the primary aim of fiscal policy?

To manage the economy through its influence on aggregate national output Signup and view all the answers

Which of the following is NOT a way in which fiscal policy can influence aggregate demand?

Cuts in corporation (company) taxes Signup and view all the answers

In a recession with rising unemployment, why may cuts in income taxes not necessarily raise consumer spending?

Consumers prefer to save more in anticipation of further economic deterioration Signup and view all the answers

Which camp of economists believes that fiscal policy can have powerful effects on aggregate demand, output, and employment?

Keynesians Signup and view all the answers

Which camp of economists believes that monetary policy is a more effective tool for restraining or boosting inflationary pressures?

Monetarists Signup and view all the answers

What is the main focus of the discussion on fiscal policy?

The impact of changes in government spending and revenue on the aggregate economy Signup and view all the answers

What is the impact of new public spending on social goods and infrastructure on aggregate demand?

It boosts personal incomes and raises aggregate demand Signup and view all the answers

Which of the following is NOT a challenge to achieving the overarching goal of monetary and fiscal policy?

Low levels of unemployment Signup and view all the answers

What is the primary objective of both monetary and fiscal policy?

To create a stable and positive growth environment Signup and view all the answers