4.4.5 Effects of Fiscal Policy

• One primary objective of fiscal policy is to control aggregate demand
• Match the fiscal policy objective with its description:

  Control aggregate demand ↔️ Influence total demand for goods and services

  Boost economic growth ↔️ Stimulate production and economic activity

  Reduce unemployment ↔️ Create job opportunities

  Redistribute income ↔️ Balance income distribution using taxes
• Expansionary fiscal policy aims to increase aggregate demand by raising disposable incomes.


  True
• Expansionary fiscal policy is contrasted with contractionary fiscal policy, which aims to reduce government spending
• Expansionary fiscal policy reduces aggregate demand.

  False
• Sequence the primary objectives of fiscal policy:

  1️⃣ Control aggregate demand

  2️⃣ Boost economic growth

  3️⃣ Reduce unemployment

  4️⃣ Control inflation

  5️⃣ Redistribute income
• The increase in aggregate demand leads to higher GDP growth
• What are the effects of contractionary fiscal policy on unemployment?

  Increases unemployment
• Expansionary fiscal policy leads to higher disposable incomes for consumers and businesses, resulting in increased consumption
• How does expansionary fiscal policy affect the unemployment rate?

  Reduces unemployment
• Contractionary fiscal policy increases economic growth and reduces unemployment.

  False
• Contractionary fiscal policy contrasts with expansionary fiscal policy, which aims to stimulate economic growth
• The primary objectives of fiscal policy include controlling aggregate demand
• Expansionary fiscal policy may increase government debt while boosting economic growth.


  True
• Contractionary fiscal policy aims to reduce aggregate demand
• How does contractionary fiscal policy affect unemployment?

  Increases unemployment
• Match the government's roles in fiscal policy with their descriptions:

  Setting tax rates ↔️ Determining tax levels to influence economic activity

  Budgeting ↔️ Planning and allocating government spending

  Debt management ↔️ Maintaining economic stability by managing government debt
• What is fiscal policy used to influence?

  The economy
• Fiscal policy can be used to control inflation.


  True
• What are the two tools of expansionary fiscal policy?

  Reduced taxes or increased spending
• Sequence the effects of expansionary fiscal policy:

  1️⃣ Increase government spending and/or reduce taxes

  2️⃣ Increase aggregate demand

  3️⃣ Boost economic growth

  4️⃣ Reduce unemployment
• What are the effects of contractionary fiscal policy on the economy?

  Decreased growth and increased unemployment
• What is the immediate impact of expansionary fiscal policy on aggregate demand?

  Increase
• Expansionary fiscal policy reduces unemployment by creating more job opportunities.

  True
• What does expansionary fiscal policy involve in terms of government spending and taxes?

  Increases spending, reduces taxes
• Expansionary fiscal policy leads to a boost in economic growth by stimulating production and employment.


  True
• Contractionary fiscal policy reduces aggregate demand
• Match the objectives of contractionary fiscal policy with their descriptions:

  Reducing aggregate demand ↔️ Higher taxes and lower spending decrease consumption and investment

  Controlling inflation ↔️ Helps prevent prices from rising too rapidly by cooling down the economy

  Reducing government debt ↔️ Lower government spending decreases budget deficits
• What is the primary focus of fiscal policy?

  Government spending and taxation
• Steps of expansionary fiscal policy:

  1️⃣ Increase government spending

  2️⃣ Reduce taxes

  3️⃣ Increase aggregate demand

  4️⃣ Boost economic growth

  5️⃣ Reduce unemployment
• What is the impact of expansionary fiscal policy on aggregate demand?

  Increases aggregate demand
• Contractionary fiscal policy aims to slow down economic growth by reducing aggregate demand.

  True
• The government plays a crucial role in managing fiscal policy