2.5.1 Fiscal policy

• What is fiscal policy used to influence?

  Aggregate demand and the economy
• Expansionary fiscal policy involves increasing government spending and/or reducing taxes to boost aggregate demand.


  True
• Fiscal policy aims to achieve economic stability, full employment, and sustainable growth
• What are some examples of taxation used in fiscal policy?

  Income taxes, sales taxes
• Contractionary fiscal policy reduces aggregate demand by decreasing government spending and/or raising taxes
• Expansionary fiscal policy reduces taxation and increases government spending to combat recession.


  True
• The government uses fiscal policy instruments like taxation and government spending to influence aggregate demand
• What are some examples of taxation used in fiscal policy?

  Income taxes, sales taxes
• Fiscal policy can be expansionary or contractionary depending on economic conditions.


  True
• Match the type of fiscal policy with its economic goal:

  Expansionary ↔️ Combat recession, increase employment

  Contractionary ↔️ Reduce inflation, control budget deficit
• What are the two main instruments of fiscal policy?

  Government spending and taxation
• How does taxation affect disposable income and consumer spending?

  Lowers taxes, increases spending
• Expansionary fiscal policy increases aggregate demand, while contractionary fiscal policy decreases
• What are the two main instruments of fiscal policy?

  Government spending and taxation
• Expansionary fiscal policy reduces taxation and increases government spending to combat recession.


  True
• Government spending includes expenditure on public services and infrastructure like education, healthcare, and defense
• What is the effect of increased government spending on aggregate demand?

  Stimulates aggregate demand
• How does increased government spending affect employment and economic activity?

  Boosts employment and activity
• What are the two main uses of fiscal policy instruments?

  Expansionary or contractionary
• What is the primary goal of expansionary fiscal policy?

  Combat recession
• What happens to aggregate demand under expansionary fiscal policy?

  It increases
• Expansionary fiscal policy reduces government spending to combat inflation.

  False
• What is the immediate impact of expansionary fiscal policy on aggregate demand?

  Increases aggregate demand
• Contractionary fiscal policy leads to decreased government spending and increased taxation
• What is the main goal of fiscal policy?

  Economic stability, full employment, sustainable growth
• Contractionary fiscal policy aims to reduce aggregate demand during high inflation.


  True
• Lowering taxes increases disposable income, encouraging consumer spending and investment
• What is the impact of increased government spending on aggregate demand in expansionary fiscal policy?

  Increases it
• The economic goal of expansionary fiscal policy is to combat recession and increase employment.


  True
• Economic stability is a primary objective of fiscal policy.


  True
• To reduce fluctuations in the economy and maintain a stable price level, governments may increase government spending and/or reduce taxes
• The main objectives of fiscal policy include economic stability, full employment, and sustainable growth
• What is the impact of contractionary fiscal policy on aggregate demand?

  Reduces aggregate demand
• Government spending includes expenditure on infrastructure, education, and healthcare.


  True
• Order the effects of expansionary fiscal policy on aggregate demand:

  1️⃣ Government increases spending and/or reduces taxes

  2️⃣ Disposable income rises

  3️⃣ Consumer spending and investment increase

  4️⃣ Aggregate demand shifts to the right
• What type of fiscal policy is used during a recession to stimulate employment?

  Expansionary fiscal policy
• Which type of fiscal policy is used to reduce inflation and control budget deficits?

  Contractionary fiscal policy
• Government spending includes expenditure on infrastructure, education, and healthcare.


  True
• Order the effects of contractionary fiscal policy on aggregate demand:

  1️⃣ Government decreases spending and/or increases taxes

  2️⃣ Disposable income falls

  3️⃣ Consumer spending and investment decrease

  4️⃣ Aggregate demand shifts to the left
• During a recession, the government may increase spending on infrastructure projects, which is an example of expansionary fiscal policy