The Economic Domino Effect
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Questions and Answers

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?

    <p>Government's decisions about taxation and spending</p> Signup and view all the answers

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

    <p>Government</p> Signup and view all the answers

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

    <p>They have a negligible impact on the wider economy</p> Signup and view all the answers

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

    <p>Households consuming more and saving less</p> Signup and view all the answers

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

    <p>By influencing the quantity of money and credit in an economy</p> Signup and view all the answers

    What do governments express their policies through?

    <p>Borrowing and spending activities</p> Signup and view all the answers

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

    <p>The population</p> Signup and view all the answers

    Which one of the following best defines government revenue?

    <p>Taxes and other payments collected by the government</p> 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?

    <p>To assess the extent of government involvement in the economy</p> Signup and view all the answers

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

    <p>Transfer payments to taxpayers</p> 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?

    <p>They have remained fairly constant</p> Signup and view all the answers

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

    <p>Denmark</p> Signup and view all the answers

    What is the purpose of fiscal policy in a recession?

    <p>To stabilize the economy</p> Signup and view all the answers

    What is the budget surplus or deficit?

    <p>The difference between government revenue and expenditure</p> Signup and view all the answers

    What are automatic stabilizers in fiscal policy?

    <p>Government spending on social insurance and unemployment benefits</p> Signup and view all the answers

    How do automatic stabilizers reduce output fluctuations?

    <p>By providing stability to the economy in response to shocks</p> Signup and view all the answers

    What distinguishes automatic stabilizers from discretionary fiscal policies?

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

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

    <p>Accelerating economic growth</p> Signup and view all the answers

    What is the primary aim of fiscal policy?

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

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

    <p>Cuts in corporation (company) taxes</p> Signup and view all the answers

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

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

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

    <p>Keynesians</p> 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?

    <p>Monetarists</p> Signup and view all the answers

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

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

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

    <p>It boosts personal incomes and raises aggregate demand</p> Signup and view all the answers

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

    <p>Low levels of unemployment</p> Signup and view all the answers

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

    <p>To create a stable and positive growth environment</p> Signup and view all the answers

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