What is a government budget deficit?
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A. A deficit occurs when spending exceeds tax revenue, while option B describes a surplus.
A fictional country's government plans spending of 500 billion dollars and expects tax revenue of 450 billion dollars. What is the budget position?
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D. Spending is 50 billion dollars more than revenue, so there is a deficit, while option A confuses this with a surplus.
Which is the best example of a merit good that a government may provide?
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B. A public library is a merit good because it is beneficial and under-consumed without government support, while option A is a public good.
Why might a government spend on infrastructure such as roads and bridges?
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C. Infrastructure can lower transport costs and support growth, while option B states the opposite effect.
Which of the following is a direct tax?
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D. Income tax is paid directly on income, while option A is an indirect tax on spending.
A tax where the percentage of income paid rises as income increases is called what?
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A. A progressive tax takes a higher proportion from higher incomes, while option B takes a higher proportion from lower incomes.
A fictional government increases the tax on cigarettes to reduce their consumption. This is mainly using taxation to do what?
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B. The tax aims to reduce consumption of a demerit good and its negative effects, while option A is not the main aim here.
Fiscal policy is best defined as what?
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C. Fiscal policy uses government spending and taxation, while option A describes monetary policy.
Which pair are instruments of fiscal policy?
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A. Fiscal policy is implemented through spending and taxation, while option B is monetary policy.
Which of the following is an expansionary fiscal policy measure?
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D. Higher government spending injects demand into the economy, while options A and B are contractionary.
To reduce inflation, a government could use contractionary fiscal policy by doing what?
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B. Reducing spending and raising taxes lowers aggregate demand, while options C and D are monetary policy measures.
Which of the following is an automatic stabiliser?
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C. These stabilisers change automatically with the economic cycle, while option A is a discretionary fiscal measure.
Expansionary fiscal policy is most likely to have which effect?
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A. Higher spending or lower taxes raise aggregate demand and can create jobs, while option D may worsen inflation instead.
What is a possible conflict of using expansionary fiscal policy?
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D. Faster growth can cause demand-pull inflation and more imports, while option A describes the opposite of expansion.
A government raises taxes on high earners and increases benefits for low-income households. This fiscal policy mainly aims to do what?
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B. Progressive taxes and transfers redistribute income, while option A is not the main aim of this policy.