4. Macroeconomic Foundations

Fiscal Policy — Quiz

Test your understanding of fiscal policy with 5 practice questions.

Practice Questions

Question 1

Which of the following scenarios would lead to the largest increase in aggregate demand, assuming the same initial change in government spending or taxes and a marginal propensity to consume (MPC) of $0.75$?

Question 2

If the government implements an expansionary fiscal policy during a period of full employment, which of the following is the most likely short-run consequence?

Question 3

The concept of 'crowding out' suggests that an increase in government borrowing to finance a budget deficit can lead to:

Question 4

Which of the following is a limitation of using fiscal policy to stabilize the economy?

Question 5

If the government wants to achieve a specific increase in aggregate demand through a change in taxes, and the marginal propensity to consume (MPC) is $0.8$, what is the absolute value of the tax multiplier?