Budget and Fiscal Policy Basics - Exam Prep Problem Set

Budget and Fiscal Policy Basics - Problem Set

Q. What is the effect of a balanced budget on the economy?

Solution

A balanced budget can stimulate economic growth by ensuring that government spending is aligned with revenues, promoting stability.

Correct Answer: B — Reduces public debt

Q. What is the primary goal of expansionary fiscal policy?

Solution

The primary goal of expansionary fiscal policy is to decrease unemployment by increasing government spending and/or cutting taxes.

Correct Answer: B — To decrease unemployment

Q. What is the role of the Reserve Bank of India (RBI) in fiscal policy?

Solution

The RBI plays a role in managing government debt by facilitating the issuance of government securities and managing liquidity.

Correct Answer: B — Managing government debt

Q. Which fiscal policy action is likely to stimulate economic growth?

Solution

Increasing government spending is likely to stimulate economic growth by boosting demand and creating jobs.

Correct Answer: C — Increasing government spending

Q. Which of the following is a direct consequence of a budget surplus?

Solution

A budget surplus allows the government to reduce national debt, as it has excess funds after covering its expenditures.

Correct Answer: B — Reduction in national debt

Q. Which of the following is an example of an automatic stabilizer?

Solution

Unemployment benefits are an example of an automatic stabilizer, as they automatically increase during economic downturns to support individuals.

Correct Answer: B — Unemployment benefits

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