4.5.1 Fiscal policy

• Fiscal policy uses government spending and taxation to achieve economic objectives.
• During what economic condition is contractionary fiscal policy typically used?

  High inflation
• What is fiscal policy used to influence?

  Economic activity
• Expansionary fiscal policy involves increasing government spending or lowering taxes.

  True
• Expansionary fiscal policy increases government spending and decreases taxes.
• Match the fiscal policy tool with its economic impact:

  Government spending ↔️ Increases aggregate demand

  Taxation ↔️ Reduces disposable income
• During which economic condition is contractionary fiscal policy typically used?

  High inflation
• Expansionary fiscal policy aims to stimulate economic activity.

  True
• Contractionary fiscal policy aims to reduce aggregate demand
• What is the main goal of contractionary fiscal policy during high inflation?

  Stabilize prices
• Order the effects of expansionary fiscal policy on the macroeconomy:

  1️⃣ Increases GDP growth

  2️⃣ Raises inflation

  3️⃣ Decreases unemployment

  4️⃣ May worsen trade balance
• How does expansionary fiscal policy affect unemployment?

  Decreases unemployment
• What are the two main types of fiscal policy based on their economic impact?

  Expansionary, contractionary
• What is the primary goal of contractionary fiscal policy during high inflation?

  Stabilize prices
• Match the fiscal policy tool with its effect:

  Lower taxes ↔️ Increases disposable income

  Higher government spending ↔️ Creates jobs
• Fiscal policy is used during economic slowdowns or recessions to stimulate economic activity
• The main fiscal policy tools are government spending and taxation.


  True
• Expansionary fiscal policy involves the government increasing spending and/or decreasing taxes
• Fiscal policy significantly impacts macroeconomic variables through its influence on aggregate demand.

  True
• One challenge of fiscal policy is time lags
• Imperfect information can lead to incorrect fiscal policy choices.


  True
• Contractionary fiscal policy is used during periods of high inflation
• Contractionary fiscal policy involves decreasing government spending
• Expansionary fiscal policy involves increasing government spending
• What are the two main actions taken by the government in expansionary fiscal policy?

  Increase spending, decrease taxes
• What are the two primary tools used in fiscal policy?

  Government spending, taxation
• Expansionary fiscal policy is used during recessions to boost economic growth.


  True
• Fiscal policy influences macroeconomic variables by impacting aggregate demand
• Contractionary fiscal policy reduces inflation by decreasing demand.

  True
• Fiscal policy aims to achieve economic objectives such as full employment, price stability, and economic growth
• Expansionary fiscal policy is typically used during periods of economic recession.


  True
• Contractionary fiscal policy reduces aggregate demand to help stabilize prices
• What are the two main actions taken by the government in contractionary fiscal policy?

  Decrease spending, increase taxes
• Fiscal policy aims to promote full employment and economic growth
• Match the fiscal policy tool with its description:

  Government spending ↔️ Increasing or decreasing spending on public services

  Taxation ↔️ Raising or lowering tax rates
• Contractionary fiscal policy involves the government decreasing spending and/or increasing taxes
• Match the macroeconomic variable with its effect under expansionary or contractionary fiscal policy:

  GDP Growth ↔️ Increases under expansionary policy

  Inflation ↔️ Reduces under contractionary policy

  Unemployment ↔️ Decreases under expansionary policy
• Ricardian equivalence suggests that tax cuts are saved by households, neutralizing the stimulus
• Expansionary fiscal policy is used during periods of economic slowdown or recession
• Match the fiscal policy type with its aim:

  Expansionary ↔️ Stimulate economic activity

  Contractionary ↔️ Slow down economic activity