3.5 Fiscal Policy

• Government spending can boost GDP but may also cause inflation.


  True
• Increased government spending can boost economic growth but may also lead to higher inflation.
• Taxation is used to control inflation but may slow down economic growth.
• Match the fiscal policy tool with its primary effect on unemployment:

  Government Spending ↔️ Decreases unemployment

  Taxation ↔️ Increases unemployment
• What happens to unemployment during expansionary fiscal policy?

  Decreases due to job creation
• Fiscal policy aims to stabilize the economy through strategic manipulation of public finances.


  True
• The two main tools of fiscal policy are government spending and taxation
• What is the primary goal of contractionary fiscal policy?

  Cool down overheated economy
• Expansionary fiscal policy increases government debt because the government borrows more to finance higher spending and lower tax revenues.
• What are the two main tools of fiscal policy?

  Government spending and taxation
• How does taxation affect disposable income and economic growth?

  Reduces disposable income, slows growth
• Raising taxes can help control inflation but may also increase unemployment.


  True
• Government spending can reduce unemployment but may also increase inflation.


  True
• Expansionary fiscal policy involves increasing government spending and/or decreasing taxes.
• Expansionary fiscal policy involves increasing government spending and/or decreasing taxes
• What impact does increased government spending have on economic growth?

  Increases
• Changes in government spending directly boost aggregate demand and GDP.


  True
• Higher taxes reduce consumer spending, leading to lower inflation
• What is one risk associated with high government debt?

  Increased interest payments
• The main goals of fiscal policy include stabilizing economic growth, controlling inflation, and reducing unemployment.
• Match the fiscal policy tool with its primary economic impact:

  Government Spending ↔️ Increases economic growth

  Taxation ↔️ Controls inflation
• What are the two main objectives of fiscal policy?

  Economic growth and stability
• How does raising taxes affect consumer disposable income?

  Reduces disposable income
• Expansionary fiscal policy may lead to higher inflation if demand exceeds supply.


  True
• The primary goals of expansionary fiscal policy are to spur economic growth and reduce unemployment
• What impact does taxation have on inflation?

  Decreases
• Match the effect of expansionary fiscal policy with its impact:

  Economic Growth ↔️ Government invests in infrastructure, creating jobs

  Inflation ↔️ Increased disposable income leads to higher prices

  Unemployment ↔️ Businesses hire more workers due to higher production
• Contractionary fiscal policy leads to a decrease in economic growth.


  True