Keynesian Economics and Fiscal Policy
| Description: Keynesian Economics and Fiscal Policy Quiz | |
| Number of Questions: 14 | |
| Created by: Aliensbrain Bot | |
| Tags: economics economic policy keynesian economics fiscal policy |
According to Keynesian economics, what is the primary determinant of aggregate demand?
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Interest rates
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Government spending
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Consumer confidence
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Exchange rates
In Keynesian economics, government spending is considered a key determinant of aggregate demand, as it directly injects money into the economy and stimulates spending.
What is the multiplier effect in Keynesian economics?
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The increase in aggregate demand resulting from an increase in government spending
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The decrease in aggregate demand resulting from an increase in taxes
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The increase in investment resulting from an increase in interest rates
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The decrease in consumption resulting from an increase in inflation
The multiplier effect refers to the increase in aggregate demand that results from an initial increase in government spending. This is because the initial spending leads to increased income for recipients, who then spend a portion of that income, leading to further increases in demand.
What is the primary goal of fiscal policy in Keynesian economics?
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To stabilize the economy during economic downturns
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To promote long-term economic growth
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To control inflation
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To reduce unemployment
In Keynesian economics, fiscal policy is primarily used to stabilize the economy during economic downturns by stimulating aggregate demand through government spending and tax cuts.
What is the difference between expansionary and contractionary fiscal policy?
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Expansionary fiscal policy involves increasing government spending and/or cutting taxes, while contractionary fiscal policy involves decreasing government spending and/or raising taxes.
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Expansionary fiscal policy involves decreasing government spending and/or raising taxes, while contractionary fiscal policy involves increasing government spending and/or cutting taxes.
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Expansionary fiscal policy involves increasing government spending and/or raising taxes, while contractionary fiscal policy involves decreasing government spending and/or cutting taxes.
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Expansionary fiscal policy involves decreasing government spending and/or cutting taxes, while contractionary fiscal policy involves increasing government spending and/or raising taxes.
Expansionary fiscal policy involves increasing government spending and/or cutting taxes to stimulate aggregate demand, while contractionary fiscal policy involves decreasing government spending and/or raising taxes to reduce aggregate demand.
What is the crowding-out effect in Keynesian economics?
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The decrease in private investment resulting from an increase in government spending
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The increase in private investment resulting from an increase in government spending
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The decrease in consumer spending resulting from an increase in government spending
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The increase in consumer spending resulting from an increase in government spending
The crowding-out effect refers to the decrease in private investment that can occur when government spending increases. This is because government borrowing to finance its spending can lead to higher interest rates, making it more expensive for businesses to borrow money and invest.
What is the balanced budget multiplier?
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The ratio of the change in aggregate demand to the change in government spending when the government budget is balanced
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The ratio of the change in aggregate demand to the change in government spending when the government budget is in deficit
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The ratio of the change in aggregate demand to the change in government spending when the government budget is in surplus
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The ratio of the change in aggregate demand to the change in government spending when the government budget is in equilibrium
The balanced budget multiplier is the ratio of the change in aggregate demand to the change in government spending when the government budget is balanced. It is typically less than the multiplier for expansionary fiscal policy, as the increase in government spending is offset by the decrease in private spending due to higher taxes.
What is the automatic stabilizer in Keynesian economics?
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A government policy that automatically increases spending or cuts taxes during economic downturns
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A government policy that automatically decreases spending or raises taxes during economic downturns
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A government policy that automatically increases spending or cuts taxes during economic expansions
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A government policy that automatically decreases spending or raises taxes during economic expansions
An automatic stabilizer is a government policy that automatically increases spending or cuts taxes during economic downturns, without the need for legislative action. This helps to stabilize the economy by providing a cushion against the negative effects of a downturn.
What is the difference between discretionary fiscal policy and automatic stabilizers?
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Discretionary fiscal policy involves government actions that are taken in response to economic conditions, while automatic stabilizers are government policies that operate automatically without the need for legislative action.
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Discretionary fiscal policy involves government actions that are taken in response to economic conditions, while automatic stabilizers are government policies that operate automatically with the need for legislative action.
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Discretionary fiscal policy involves government actions that are taken without response to economic conditions, while automatic stabilizers are government policies that operate automatically with the need for legislative action.
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Discretionary fiscal policy involves government actions that are taken without response to economic conditions, while automatic stabilizers are government policies that operate automatically without the need for legislative action.
Discretionary fiscal policy involves government actions that are taken in response to economic conditions, such as increasing spending or cutting taxes during a recession. Automatic stabilizers, on the other hand, are government policies that operate automatically without the need for legislative action, such as unemployment benefits or progressive taxation.
What is the Keynesian liquidity trap?
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A situation in which the economy is stuck in a recession because interest rates are too low to stimulate investment
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A situation in which the economy is stuck in a recession because interest rates are too high to stimulate investment
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A situation in which the economy is stuck in a recession because government spending is too low to stimulate aggregate demand
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A situation in which the economy is stuck in a recession because taxes are too high to stimulate consumer spending
The Keynesian liquidity trap is a situation in which the economy is stuck in a recession because interest rates are too low to stimulate investment. This can happen when investors are pessimistic about the future and are unwilling to invest, even at very low interest rates.
What is the Keynesian paradox of thrift?
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The idea that saving can actually lead to a decrease in aggregate demand and economic growth
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The idea that saving can actually lead to an increase in aggregate demand and economic growth
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The idea that saving has no effect on aggregate demand or economic growth
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The idea that saving is always good for the economy
The Keynesian paradox of thrift is the idea that saving can actually lead to a decrease in aggregate demand and economic growth. This is because when people save more, they spend less, which reduces aggregate demand. This can lead to a recession if businesses are unable to sell their goods and services.
What is the relationship between the multiplier and the marginal propensity to consume?
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The multiplier is equal to the inverse of the marginal propensity to consume
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The multiplier is equal to the marginal propensity to consume
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The multiplier is equal to the square root of the marginal propensity to consume
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The multiplier is equal to the cube root of the marginal propensity to consume
The multiplier is equal to the inverse of the marginal propensity to consume. This is because the multiplier shows how much aggregate demand increases for each dollar of government spending, and the marginal propensity to consume shows how much of each dollar of income is spent on consumption.
What is the relationship between fiscal policy and monetary policy?
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Fiscal policy and monetary policy are independent of each other
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Fiscal policy and monetary policy are substitutes for each other
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Fiscal policy and monetary policy are complements to each other
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Fiscal policy and monetary policy are unrelated to each other
Fiscal policy and monetary policy are complements to each other, meaning that they can be used together to achieve economic goals. For example, expansionary fiscal policy can be used to stimulate aggregate demand, while expansionary monetary policy can be used to lower interest rates and encourage investment.
What are the main criticisms of Keynesian economics?
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Keynesian economics is too simplistic and does not take into account the complexity of the economy.
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Keynesian economics is too focused on short-term economic fluctuations and does not address long-term economic growth.
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Keynesian economics is too interventionist and gives too much power to the government.
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All of the above
Keynesian economics has been criticized for being too simplistic, too focused on short-term economic fluctuations, and too interventionist. Some economists argue that Keynesian economics does not take into account the complexity of the economy and that its focus on government intervention can lead to unintended consequences.
What are the main contributions of Keynesian economics?
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Keynesian economics provided a new understanding of how the economy works and how it can be managed.
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Keynesian economics helped to end the Great Depression.
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Keynesian economics laid the foundation for modern macroeconomic policy.
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All of the above
Keynesian economics made significant contributions to our understanding of how the economy works and how it can be managed. It helped to end the Great Depression and laid the foundation for modern macroeconomic policy.