Question 1

Fiscal policy includes the use of interest rates to control the economy.

Accepted Answer

Fiscal policy involves government spending and taxation decisions, whereas the use of interest rates to control the economy is part of monetary policy, which is typically implemented by a central bank.

Question 2

A budget surplus means that government spending is less than government revenue

Accepted Answer

A budget surplus occurs when a government's revenue exceeds its expenditures during a specific period, meaning it has spent less than the amount of money it has received.

Question 3

A budget deficit will increase the government debt

Accepted Answer

A budget deficit occurs when a government spends more money than it receives in revenue, leading to borrowing and an increase in government debt.

Question 4

Which of the following is NOT an example of fiscal policy?&#10;A) Cutting interest rates&#10;B) Cutting income tax.&#10;C) Cutting government spending&#10;D) Cutting fuel taxes in the economy.

Accepted Answer

Cutting interest rates is a monetary policy tool used by central banks to influence the economy, not a fiscal policy. Fiscal policy involves government spending and taxation decisions.

Question 5

Which of the following is true about the multiplier?&#10;A) Its measures the relationship between an increase in spending and an increase in inflation&#10;B) Its measures the relationship between an increase in spending and an increase in imports&#10;C) The size of the multiplier will be bigger if the marginal propensity to consume is bigger&#10;D) The size of the multiplier will be bigger if the marginal propensity to import is bigger

Accepted Answer

The multiplier effect refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of spending. The size of the multiplier is indeed influenced by the marginal propensity to consume (MPC), with a higher MPC leading to a larger multiplier effect. This is because a higher MPC means that individuals are more likely to spend additional income, thus further stimulating economic activity and increasing the overall impact of the initial spending injection.

Question 6

To increase aggregate demand the Government could increase tax rates.

Accepted Answer

Increasing tax rates typically reduces disposable income for consumers and investment funds for businesses, which can lead to a decrease in consumption and investment, thus potentially reducing aggregate demand.

Question 7

In a progressive tax system the average rate of tax falls with more income

Accepted Answer

In a progressive tax system, the average rate of tax increases as income increases.

Question 8

Quantitative easing is part of monetary policy

Accepted Answer

Quantitative easing is a monetary policy tool used by central banks to inject money directly into the economy, typically by purchasing government securities or other financial assets, to stimulate economic activity.

Question 9

A budget deficit is often a sign of an expansionist fiscal policy.

Accepted Answer

A budget deficit occurs when a government's expenditures exceed its revenues, and it often results from expansionist fiscal policy aimed at stimulating economic growth through increased public spending or tax cuts.

Question 10

When the economy is in a recession the budget position automatically worsens.

Accepted Answer

During a recession, government revenues typically decrease due to lower tax income from reduced economic activity, while spending on unemployment benefits and other social services increases, leading to a worsening budget position.

Question 11

Which of the following would not shift aggregate supply?&#10;A) Training.&#10;B) Investment.&#10;C) Aggregate demand.&#10;D) An increase in the working population.

Accepted Answer

The answer of Which of the following would not shift...

Question 12

Monetary policy involves controlling the money supply to influence the economy.

Accepted Answer

The answer of Monetary policy involves controlling the money supply...

Question 13

Changing the benefit system to encourage people to work is a supply side policy.

Accepted Answer

The answer of Changing the benefit system to encourage people...

Question 14

Changing the tax system to encourage businesses to innovate is a supply side policy.

Accepted Answer

The answer of Changing the tax system to encourage businesses...

Question 15

To increase aggregate demand the Bank of England could cut interest rates.

Accepted Answer

The answer of To increase aggregate demand the Bank of...

Question 16

Lower interest rates may encourage more investment and less saving.

Accepted Answer

The answer of Lower interest rates may encourage more investment...

Deck 12: Government Macroeconomic Policy and Business