Back
0

Contractionary Fiscal Policy: Tools and Implementation

Description: Contractionary Fiscal Policy: Tools and Implementation
Number of Questions: 15
Created by:
Tags: indian economics fiscal policy and government budget
Start the Quiz
Attempted 0/15 Correct 0 Score 0
‹
›

What is the primary objective of contractionary fiscal policy?

  1. To stimulate economic growth

  2. To reduce inflation

  3. To increase government spending

  4. To increase the budget deficit

Show answer
Correct Option: B
Explanation:

Contractionary fiscal policy aims to reduce inflation by decreasing aggregate demand.

Which of the following is a tool of contractionary fiscal policy?

  1. Expansionary monetary policy

  2. Increased government spending

  3. Increased taxation

  4. Increased borrowing

Show answer
Correct Option: C
Explanation:

Increased taxation is a tool of contractionary fiscal policy because it reduces disposable income and, consequently, aggregate demand.

How does contractionary fiscal policy affect aggregate demand?

  1. It increases aggregate demand.

  2. It decreases aggregate demand.

  3. It has no effect on aggregate demand.

  4. It increases aggregate supply.

Show answer
Correct Option: B
Explanation:

Contractionary fiscal policy decreases aggregate demand by reducing disposable income and, consequently, consumer spending.

What is the impact of contractionary fiscal policy on economic growth?

  1. It stimulates economic growth.

  2. It slows down economic growth.

  3. It has no effect on economic growth.

  4. It increases unemployment.

Show answer
Correct Option: B
Explanation:

Contractionary fiscal policy slows down economic growth by reducing aggregate demand.

How does contractionary fiscal policy affect the budget deficit?

  1. It increases the budget deficit.

  2. It decreases the budget deficit.

  3. It has no effect on the budget deficit.

  4. It increases the national debt.

Show answer
Correct Option: B
Explanation:

Contractionary fiscal policy decreases the budget deficit by reducing government spending and/or increasing taxation.

Which of the following is an example of a contractionary fiscal policy measure?

  1. Cutting government spending

  2. Raising taxes

  3. Increasing government borrowing

  4. Printing more money

Show answer
Correct Option: A
Explanation:

Cutting government spending is an example of a contractionary fiscal policy measure because it reduces aggregate demand.

What is the impact of contractionary fiscal policy on interest rates?

  1. It increases interest rates.

  2. It decreases interest rates.

  3. It has no effect on interest rates.

  4. It increases inflation.

Show answer
Correct Option: A
Explanation:

Contractionary fiscal policy increases interest rates by reducing the supply of loanable funds.

How does contractionary fiscal policy affect the exchange rate?

  1. It appreciates the exchange rate.

  2. It depreciates the exchange rate.

  3. It has no effect on the exchange rate.

  4. It increases the trade deficit.

Show answer
Correct Option: A
Explanation:

Contractionary fiscal policy appreciates the exchange rate by reducing the demand for foreign currency.

Which of the following is a potential drawback of contractionary fiscal policy?

  1. It can lead to a recession.

  2. It can increase unemployment.

  3. It can reduce economic growth.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

Contractionary fiscal policy can lead to a recession, increase unemployment, and reduce economic growth.

When is contractionary fiscal policy typically implemented?

  1. During periods of high inflation.

  2. During periods of low unemployment.

  3. During periods of economic recession.

  4. During periods of high economic growth.

Show answer
Correct Option: A
Explanation:

Contractionary fiscal policy is typically implemented during periods of high inflation to reduce aggregate demand and bring inflation under control.

What is the difference between contractionary fiscal policy and expansionary fiscal policy?

  1. Contractionary fiscal policy increases aggregate demand, while expansionary fiscal policy decreases aggregate demand.

  2. Contractionary fiscal policy decreases aggregate demand, while expansionary fiscal policy increases aggregate demand.

  3. Contractionary fiscal policy increases government spending, while expansionary fiscal policy decreases government spending.

  4. Contractionary fiscal policy increases taxation, while expansionary fiscal policy decreases taxation.

Show answer
Correct Option: B
Explanation:

Contractionary fiscal policy decreases aggregate demand by reducing government spending and/or increasing taxation, while expansionary fiscal policy increases aggregate demand by increasing government spending and/or reducing taxation.

Which of the following is an example of an expansionary fiscal policy measure?

  1. Cutting government spending

  2. Raising taxes

  3. Increasing government borrowing

  4. Printing more money

Show answer
Correct Option: C
Explanation:

Increasing government borrowing is an example of an expansionary fiscal policy measure because it increases the supply of loanable funds and, consequently, aggregate demand.

What is the impact of expansionary fiscal policy on interest rates?

  1. It increases interest rates.

  2. It decreases interest rates.

  3. It has no effect on interest rates.

  4. It increases inflation.

Show answer
Correct Option: B
Explanation:

Expansionary fiscal policy decreases interest rates by increasing the supply of loanable funds.

How does expansionary fiscal policy affect the exchange rate?

  1. It appreciates the exchange rate.

  2. It depreciates the exchange rate.

  3. It has no effect on the exchange rate.

  4. It increases the trade deficit.

Show answer
Correct Option: B
Explanation:

Expansionary fiscal policy depreciates the exchange rate by increasing the demand for foreign currency.

Which of the following is a potential drawback of expansionary fiscal policy?

  1. It can lead to inflation.

  2. It can increase the budget deficit.

  3. It can lead to a trade deficit.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

Expansionary fiscal policy can lead to inflation, increase the budget deficit, and lead to a trade deficit.

- Hide questions
ADVERTISEMENT

Find more quizzes from top tags

general knowledge
3615 Quizzes
119858 Questions
 technology
307 Quizzes
36705 Questions
 sports
963 Quizzes
19148 Questions
 history
1187 Quizzes
13475 Questions
 physics
598 Quizzes
13441 Questions
 biology
1160 Quizzes
12174 Questions
 science & technology
551 Quizzes
11015 Questions
 chemistry
490 Quizzes
9892 Questions
 maths
518 Quizzes
9324 Questions
 softskills
0 Quizzes
7131 Questions