2. Macroeconomics

Fiscal Policy — Quiz

Test your understanding of fiscal policy with 5 practice questions.

Practice Questions

Question 1

Given an actual budget deficit of –3.0 % of GDP, an output gap of –4.0 %, and a tax elasticity of 0.40 (with no spending elasticity), what is the cyclically adjusted budget balance?

Question 2

For a government targeting a stable debt-to-GDP ratio with b=80 %, real interest rate r=6 %, and real growth rate g=2 %, what primary surplus (as a percentage of GDP) is required?

Question 3

What best describes the operational budget balance measure?

Question 4

Why is the cyclically adjusted budget balance preferred for assessing discretionary fiscal policy?

Question 5

If actual GDP exceeds potential by 5 %, and the average marginal tax rate is 25 %, by how much does the budget balance improve due to automatic stabilizers (as % of GDP)?