Magnificent Economics Fiscal Policy Test - 79+ MCQs: Economics - Fiscal Policy Quiz: Test Your Understanding with Challenging Questions and Detailed Answers

1. Which fiscal policy approach emphasizes reducing government intervention in the economy?

Keynesian economics

Laissez-faire

Monetarism

Supply-side economics

2. Which tax system imposes the same tax rate on everyone, regardless of income?

Progressive tax

Regressive tax

Proportional tax

Exponential tax

3. What is the main concern associated with a budget deficit?

Inflationary pressures

Reduced government borrowing

Enhanced consumer spending

Increased foreign investments

4. What does the term 'twin deficits' refer to in fiscal policy?

Simultaneous budget and trade surpluses

Simultaneous budget and trade deficits

Increased public and private sector investments

Coordination between fiscal and monetary policies

5. How does 'Crowding Out' affect fiscal policy?

Increased government borrowing reduces private sector investments

Tax cuts lead to reduced consumer spending

Government interventions enhance market competition

High inflation rates decrease the effectiveness of fiscal policy

6. What does the 'balanced budget multiplier' indicate?

The impact of a balanced budget on economic growth

The multiplier effect when government spending equals government revenues

The effect of fiscal policy on budget deficits

The relationship between government debt and economic output

7. What is 'Ricardian Equivalence'?

Government debt has no impact on private consumption

Tax cuts are fully offset by increased consumer savings

Government spending directly crowds out private investments

Public debt increases future tax obligations

8. What does discretionary fiscal policy refer to?

Automatically adjusting tax rates

Pre-determined government expenditures

Flexible government spending and taxation decisions

Tax policies set by international agreements

9. Which of the following best describes 'Expansionary Fiscal Policy'?

Reducing government spending during economic downturns

Increasing taxes to curb inflationary pressures

Decreasing interest rates to stimulate investments

Increasing government spending or reducing taxes to boost economic activity

10. What does the term 'tax buoyancy' signify?

The elasticity of tax revenue with respect to GDP growth

The stability of tax rates over time

The progressivity of tax structures

The distribution of tax burden among different income groups

Economics - Fiscal Policy MCQ Test 5