Discover Fiscal Policy and Economic Growth
What is fiscal policy primarily concerned with?
- Fiscal policy revolves around the use of government revenue collection and expenditure to influence a country's economy.
Which of the following is NOT an instrument of fiscal policy?
- Interest rates are typically managed by a nation's central bank as part of its monetary policy, not fiscal policy.
What is the main goal of expansionary fiscal policy?
- Expansionary fiscal policy is typically used to stimulate economic growth during a recession by increasing government spending or lowering taxes.
What does a contractionary fiscal policy entail?
- Contractionary fiscal policy is used to slow economic growth and combat inflation, and it typically involves increasing taxes and/or reducing government spending.
How does fiscal policy affect economic growth?
- Fiscal policy influences economic growth by affecting the levels of savings and investments through changes in tax policy and government spending.
What is the crowding out effect in the context of fiscal policy?
- The crowding out effect refers to the situation where increased government borrowing leads to higher interest rates, which can decrease private sector investment.
What is the relationship between fiscal deficits and economic growth?
- While fiscal deficits can stimulate economic growth by increasing aggregate demand, they can also hinder growth if they lead to high levels of debt that require increased taxation or cause inflation.
Which of the following is a long-term impact of fiscal policy on economic growth?
- While fiscal policy can have many short-term impacts, one of its most significant long-term effects is on the level of national savings and investments, which are key determinants of economic growth.
What is the role of automatic stabilizers in fiscal policy?
- Automatic stabilizers are mechanisms that automatically adjust government spending and taxes in response to economic conditions, helping to stabilize an economy during periods of fluctuation.
What is the primary difference between discretionary fiscal policy and automatic stabilizers?
- Discretionary fiscal policy involves deliberate changes in government spending and taxation to influence the economy, while automatic stabilizers adjust automatically in response to economic conditions.
