Fiscal Policy | MCQs

Explanation

Deficit financing occurs when a government spends more than its revenue.

It often does so by borrowing or printing additional currency to cover the gap.

This is typically done to stimulate the economy.

Explanation

Deficit financing occurs when a government's expenditures surpass its revenues.

It leading to borrowing or using reserves to cover the shortfall.

This approach is often used to stimulate economic growth or fund large projects.

Explanation

Fiscal policy addresses taxation and government spending, and it is generally determined by government legislation

Explanation

• If fiscal policy is trying to promote stability and economic growth through tax cuts, it is using expansionary fiscal policy.
• Expansionary fiscal policy involves increasing government spending and/or reducing taxes to stimulate economic growth and boost aggregate demand.

Explanation

• The term "crowding out" refers to the decrease in private investment that occurs when government borrowing increases.
• When the government borrows more money from the financial markets to finance its spending, it increases the demand for loanable funds, leading to higher interest rates.
• Higher interest rates make borrowing more expensive for businesses and individuals, reducing their willingness to invest and borrow for private investment projects.
• This phenomenon is known as "crowding out" because government borrowing "crowds out" private investment by competing for available funds in the financial markets.
  

Explanation

Government spending is a tool of fiscal policy.

Here is tye tools of Fiscal Policy:

1. Government Spending
2. Taxation
3. Transfer Payments
4. Fiscal Expansion
5. Fiscal Contraction