Practice B. Fiscal Stimulus (3.2) - Key Skills for MYP Economics - IB 10 Individuals & Societies - Economics

Practice: B. Fiscal Stimulus

Lesson 3.2Key Skills for MYP Economics

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10 questions

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6 sample questions

Question 1.
What is a fiscal stimulus?
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Fiscal policy has two tools: spending and taxation.
Question 2.
Name two tools a government can use in a fiscal stimulus.
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One group of tools puts money in directly; the other leaves more money with people and firms.
3Question 3.
Which of these is an example of a fiscal stimulus?
- The government cuts income tax during a recession
- The central bank raises interest rates
- The government raises taxes to reduce its deficit
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Look for a fiscal tool used to increase demand.
4Question 4.
If the marginal propensity to consume is 0.75, what is the simple multiplier?
- 4
- 0.25
- 1.33
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Subtract the MPC from 1 and divide 1 by the result.
Question 5.
A government spends an extra USD 20 billion on building roads. The marginal propensity to consume is 0.8. Calculate the maximum possible increase in national income, and explain two reasons why the actual increase may be smaller.
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First find the multiplier, then think about leakages and other limits on the simple model.
Question 6.
A country is in recession with high youth unemployment, but its national debt is already high. Design a fiscal stimulus for it and justify your choices, including how you would limit the risks.
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Balance the need to create jobs quickly against the danger of adding to an already high debt.

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