Question : Contractionary fiscal policy involves:
Option 1: Decreasing government expenditure and increasing taxes
Option 2: Increasing government expenditure and increasing taxes
Option 3: Decreasing government expenditure and decreasing taxes
Option 4: Increasing government expenditure and decreasing taxes
Correct Answer: Decreasing government expenditure and increasing taxes
Solution : The correct answer is (a) decreasing government expenditure and increasing taxes.
Contractionary fiscal policy is implemented to slow down economic growth and reduce inflationary pressures when the economy is experiencing high levels of inflation or overheating. The objective is to decrease aggregate demand and curb excessive spending in the economy.
To achieve this, the government typically reduces its spending on various goods, services, infrastructure projects, and programs. By decreasing government expenditure, there is less money flowing into the economy, which helps to reduce overall spending and aggregate demand.
By combining decreased government expenditure and increased taxes, contractionary fiscal policy aims to decrease overall spending, reduce inflationary pressures, and stabilize the economy.
Question : Expansionary fiscal policy involves:
Option 1: Decreasing government spending and increasing taxes
Option 2: Increasing government spending and increasing taxes
Option 3: Decreasing government spending and decreasing taxes
Option 4: Increasing government spending and decreasing taxes
Question : The government's policy of reducing taxes to stimulate economic growth is known as ____________.
Option 1: Austerity measures
Option 2: Expansionary fiscal policy
Option 3: Contractionary fiscal policy
Option 4: Supply-side economics
Question : The fiscal policy refers to changes in:
Option 1: Government expenditure and taxation
Option 2: Interest rates and money supply
Option 3: Exchange rates and trade policies
Option 4: Labor market regulations
Question : The process of increasing government spending and/or decreasing taxes in order to stimulate economic growth is known as:
Option 1: Fiscal austerity
Option 2: Fiscal stimulus
Option 3: Fiscal responsibility
Option 4: Fiscal consolidation
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