2.3 Fiscal Policy

• How does increased government spending affect the economy?

  Boosts aggregate demand
• What is the effect of taxation on aggregate demand?

  Reduces disposable income
• What is expansionary fiscal policy?

  Increase spending, decrease taxes
• What are the two primary components of fiscal policy?

  Government spending and taxation
• Government spending boosts aggregate demand
• Order the steps in how fiscal policy affects the economy.

  1️⃣ The government adjusts spending or taxes

  2️⃣ This affects disposable income or aggregate demand

  3️⃣ The economy experiences growth or stability
• Expansionary fiscal policy is often used during economic downturns to stimulate activity.

  True
• Aggregate demand is the sum of consumption, investment, government spending, and net exports
• If consumers expect fiscal changes to be temporary, the impact on spending may be limited
• Match the fiscal policy tool with its effect on the economy:

  Government Spending ↔️ Boosts aggregate demand

  Taxation ↔️ Reduces disposable income
• Match the fiscal policy tool with its effect on the economy:

  Government Spending ↔️ Boosts aggregate demand

  Taxation ↔️ Reduces disposable income
• Contractionary fiscal policy aims to stabilize the economy during inflationary periods
• Expansionary fiscal policy increases aggregate demand through increased government spending and decreased taxes
• A larger fiscal multiplier increases the impact of fiscal policy
• Time lags in fiscal policy implementation reduce its responsiveness
• Fiscal policy refers to the use of government spending and taxation to influence the overall level of economic activity.
• Government spending boosts aggregate demand, stimulating economic growth and reducing unemployment.
• Fiscal policy refers to the use of government spending and taxation to influence the overall level of economic activity.
• Increased government spending boosts aggregate demand, increases employment, and stimulates growth.
• Taxation affects disposable income, influencing aggregate demand and investment.
• What is the effect of taxation on disposable income?

  It reduces disposable income
• What is the impact of increased government spending on aggregate demand?

  It boosts aggregate demand
• What is the primary goal of contractionary fiscal policy?

  Reduce aggregate demand
• Expansionary fiscal policy increases aggregate demand and reduces unemployment.


  True
• Fiscal policy is often used in conjunction with monetary policy to achieve macroeconomic objectives.


  True
• Taxation is a system of compulsory charges imposed on income, property, and sales
• Expansionary fiscal policy involves increasing government spending or decreasing taxes
• Contractionary fiscal policy increases disposable income and encourages consumer spending.

  False
• Contractionary fiscal policy decreases aggregate demand by reducing government spending and increasing taxes.


  True
• Match the factor affecting fiscal policy with its impact:

  Monetary Policy ↔️ Expansionary policies complement fiscal policy

  Crowding Out ↔️ Reduces private investment

  Expectations ↔️ Limits consumer response
• Excessive government debt is a potential limitation of fiscal policy.


  True
• Increasing government spending can boost aggregate demand and economic growth.

  True
• Taxation affects disposable income, influencing aggregate demand and investment.


  True
• Match the fiscal policy component with its effect on the economy:

  Government Spending ↔️ Boosts aggregate demand

  Taxation ↔️ Influences disposable income
• Contractionary fiscal policy aims to stabilize the economy during inflationary periods.


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

  Government spending and taxation
• Government spending and taxation can be adjusted to achieve economic stability.


  True
• Expansionary fiscal policy involves increasing government spending or decreasing taxes
• Match the aims of fiscal policy with their definitions:

  Economic Growth ↔️ Increase productivity and output

  Price Stability ↔️ Maintain steady inflation rates

  Full Employment ↔️ Achieve low unemployment levels

  Income Distribution ↔️ Promote equitable resource allocation
• What is the effect of a larger fiscal multiplier on fiscal policy effectiveness?

  It increases effectiveness