3.5 Fiscal Policy

• Fiscal policy is the only tool governments use to achieve economic objectives.

  False
• What is the goal of contractionary fiscal policy?

  Reduce inflation
• Match the feature with the correct type of fiscal policy:

  Purpose to reduce unemployment ↔️ Expansionary Fiscal Policy

  Purpose to control inflation ↔️ Contractionary Fiscal Policy
• Decreasing government spending is intended to slow down economic growth
• Fiscal policy is one of the main tools governments use along with monetary policy
• Increasing taxes is a tool of contractionary fiscal policy.


  True
• What is fiscal policy used to influence in a country?

  Macroeconomic conditions
• Expansionary fiscal policy involves increasing government spending
• What happens to government spending under contractionary fiscal policy?

  Decreases
• Increasing government spending is a tool of contractionary fiscal policy.

  False
• What is fiscal policy defined as?

  Government spending and taxation
• What is the primary goal of expansionary fiscal policy?

  Stimulate economic growth
• Decreasing government spending is a feature of contractionary fiscal policy.


  True
• Match the fiscal policy tool with its effect under expansionary and contractionary policies:

  Government Spending ↔️ Increases in expansionary, decreases in contractionary

  Taxation ↔️ Decreases in expansionary, increases in contractionary
• Examples of expansionary fiscal policy measures:

  1️⃣ Increase government spending on infrastructure

  2️⃣ Cut personal income tax rates

  3️⃣ Introduce tax credits for investment
• Contractionary fiscal policy can help prevent runaway inflation by reducing aggregate demand.


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

  Expansionary ↔️ Increase spending/decrease taxes to stimulate growth

  Contractionary ↔️ Decrease spending/increase taxes to reduce inflation
• In expansionary fiscal policy, government spending increases
• What is a key feature of expansionary fiscal policy?

  Increase in government spending
• Match the policy with its purpose:

  Expansionary Fiscal Policy ↔️ Stimulate economic growth

  Contractionary Fiscal Policy ↔️ Control inflation
• Raising tax rates on individuals and businesses is a key measure of contractionary
• Time lags are a significant limitation of fiscal
• Match the type of fiscal policy with its goal:

  Expansionary Fiscal Policy ↔️ Stimulate economic growth

  Contractionary Fiscal Policy ↔️ Slow down economic growth
• Expansionary fiscal policy aims to reduce unemployment
• What are the two key tools of fiscal policy?

  Government spending and taxation
• Fiscal policy tools can influence aggregate demand and employment.


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

  Expansionary Fiscal Policy ↔️ Higher output, lower unemployment

  Contractionary Fiscal Policy ↔️ Lower output, stable prices
• Order the effects of expansionary fiscal policy on the economy:

  1️⃣ Government spending increases

  2️⃣ Aggregate demand rises

  3️⃣ Output increases

  4️⃣ Unemployment falls
• Expansionary fiscal policy aims to increase aggregate demand
• Contractionary fiscal policy aims to decrease aggregate demand
• Fiscal policy involves the use of government spending and taxation to influence macroeconomic conditions
• Increasing government spending and decreasing taxes is an example of expansionary fiscal policy
• Expansionary fiscal policy increases aggregate demand
• What is the impact of expansionary fiscal policy on employment?

  Employment increases
• Why is timing a challenge in fiscal policy?

  Economy's needs may change
• The two key tools of fiscal policy are government spending and taxation
• Increasing government spending and decreasing taxes is an example of contractionary fiscal policy.

  False
• Expansionary fiscal policy can help reduce unemployment by increasing aggregate demand.


  True
• Expansionary fiscal policy aims to decrease aggregate demand.

  False
• In contractionary fiscal policy, taxation increases