4.4.5 Effects of Fiscal Policy

• What is the primary goal of fiscal policy?

  Macroeconomic objectives
• Contractionary fiscal policy involves decreasing government spending or increasing taxes
• Match the type of fiscal policy with its effect on aggregate demand.

  Expansionary fiscal policy ↔️ Increases aggregate demand

  Contractionary fiscal policy ↔️ Decreases aggregate demand
• What are the two key components of fiscal policy?

  Government spending and taxation
• Order the goals of expansionary fiscal policy.

  1️⃣ Increase government spending

  2️⃣ Boost aggregate demand

  3️⃣ Encourage consumption and investment

  4️⃣ Reduce unemployment
• Expansionary Fiscal Policy is used to stimulate economic growth by increasing government spending and/or reducing taxes
• One potential drawback of Expansionary Fiscal Policy is the risk of inflation
• Contractionary Fiscal Policy may lead to slower economic growth and higher unemployment in the short term.

  True
• Match the fiscal policy type with its effects:

  Expansionary ↔️ Stimulates economy

  Contractionary ↔️ Controls inflation
• What are the two primary components of Fiscal Policy?

  Government spending and taxation
• How does Expansionary Fiscal Policy affect economic growth?

  Increases consumption and investment
• Contractionary Fiscal Policy may lead to higher unemployment in the short term.


  True
• Financing higher spending or tax cuts can result in a larger budget deficit
• Higher government spending and lower taxes boost consumption
• Expansionary fiscal policy aims to reduce unemployment and stimulate economic growth


  True
• Contractionary fiscal policy leads to lower consumption
• What is one weakness of fiscal policy related to implementation delays?

  Implementation lags
• Expansionary fiscal policy may increase inflation if demand exceeds supply.


  True
• Expansionary fiscal policy involves increasing government spending or reducing taxes to stimulate the economy.


  True
• Order the effects of expansionary fiscal policy on the economy.

  1️⃣ Aggregate demand increases

  2️⃣ Economic growth is stimulated

  3️⃣ Unemployment reduces

  4️⃣ Inflation may increase
• Contractionary fiscal policy can lead to an increase in unemployment.


  True
• Expansionary fiscal policy aims to increase economic growth and reduce unemployment
• Increased government spending under expansionary fiscal policy can lead to higher government debt.


  True
• Expansionary Fiscal Policy can lead to reduced unemployment by increasing business demand and hiring.


  True
• Effects of Contractionary Fiscal Policy on the economy

  1️⃣ Reduces aggregate demand

  2️⃣ Slows economic growth

  3️⃣ Increases unemployment

  4️⃣ May decrease inflation
• Fiscal Policy involves the use of government spending and taxation to influence economic activity
• Government spending on infrastructure is a component of Fiscal Policy.


  True
• Contractionary Fiscal Policy slows down economic growth by reducing aggregate demand
• What happens to aggregate demand under Expansionary Fiscal Policy?

  Increases
• What are the two main actions in expansionary fiscal policy?

  Increase spending or reduce taxes
• What may happen to inflation if demand rises too quickly in expansionary fiscal policy?

  Inflation may increase
• What are the two main actions in contractionary fiscal policy?

  Decrease spending or increase taxes
• Contractionary fiscal policy may decrease inflation if demand falls below supply capacity

  True
• Implementation lags in fiscal policy can delay its impact
• What are the primary goals of fiscal policy?

  Economic growth, low unemployment, price stability
• Contractionary fiscal policy aims to slow down economic activity by increasing taxes


  True
• Government spending includes funds allocated to sectors such as infrastructure
• Inflation may rise during expansionary fiscal policy if demand grows too rapidly

  True
• Economic growth slows down under contractionary fiscal policy


  True
• What are the two primary tools of contractionary fiscal policy?

  Decreasing spending, increasing taxes