3.2.3.1 Fiscal policy

• Fiscal policy refers to the government's use of government spending and taxation to influence economic activity
• Reducing taxes increases disposable income, which stimulates demand and boosts GDP.


  True
• Expansionary fiscal policy can increase inflation.


  True
• The primary objective of fiscal policy is to promote economic growth
• Government spending includes projects like infrastructure, healthcare, and education
• During the 2008 recession, governments reduced income taxes to stimulate demand.


  True
• Expansionary fiscal policy leads to higher unemployment rates.

  False
• Government spending includes projects like infrastructure, healthcare, and defense
• What type of taxes are added to the prices of goods and services?

  Indirect taxes
• What is the effect of increased government spending on infrastructure?

  Boosts demand, creates jobs
• What is the primary objective of fiscal policy during recessions?

  Maintain economic stability
• What is the economic impact of contractionary fiscal policy on GDP?

  Reduces GDP growth
• Match the fiscal policy type with its government actions:

  Expansionary ↔️ Increase spending, decrease taxes

  Contractionary ↔️ Decrease spending, increase taxes
• During a recession, which fiscal policy type is typically used?

  Expansionary
• What is the effect of contractionary fiscal policy on inflation?

  Reduces inflation
• What is an example of a direct tax?

  Income tax
• What is the difference between direct and indirect taxes?

  Direct on income, indirect on prices
• Fiscal policy involves the government's use of taxes and government spending to influence economic activity
• Direct taxes include income tax and property tax.

  True
• An expansionary fiscal policy involves decreasing taxes and increasing government spending
• Contractionary fiscal policy reduces government spending and increases taxes.


  True
• The multiplier effect occurs when an initial injection of spending leads to a magnified increase in overall GDP
• The multiplier effect can be used to estimate the impact of government stimulus programs.


  True
• High inflation can offset the positive effects of fiscal policy on unemployment
• What is a limitation of fiscal policy compared to monetary policy?

  Political challenges and time lags
• Implementation lags in fiscal policy can reduce the effectiveness of responses to economic crises
• What is a structural issue that fiscal policy alone may not address?

  Skills gaps
• What are the two main types of taxes used in fiscal policy?

  Direct and indirect taxes
• Direct taxes are levied on income and wealth
• What is an example of an indirect tax?

  VAT
• What is the primary goal of expansionary fiscal policy during a recession?

  Stimulate economic growth
• What is the primary goal of contractionary fiscal policy during an economic boom?

  Cool down inflation
• What does the marginal propensity to consume (MPC) determine in the multiplier effect?

  How much income is spent
• What is a negative effect of expansionary fiscal policy on economic growth?

  Overheating and inflation
• Increased government spending during the 2008 recession contributed to higher national debt.


  True
• Match the challenge of fiscal policy with its example:

  Implementation Lags ↔️ Slow deployment of infrastructure projects

  Political Constraints ↔️ Compromised spending and taxation policies

  Economic Uncertainties ↔️ Fiscal plans undermined by global crises

  Unintended Consequences ↔️ Crowding out of private investment
• Political priorities can compromise sound economic planning in fiscal policy.


  True