1. Directions

You will read passages on the topic and then answer questions about them. You may find vocabulary at the end of the test. Read the questions carefully before choosing the correct answers.

2. Questions of the test

Question 1. What are the two main types of fiscal policy?
A) Expansionary fiscal policy and contractionary fiscal policy
B) Demand-side fiscal policy and supply-side fiscal policy
C) Monetary policy and trade policy
D) Government spending and taxation

Question 2. What is the effect of increasing government spending?
A) It stimulates demand and creates jobs
B) It reduces demand and slows down the economy
C) It reduces government debt and deficits
D) It increases government debt and deficits

Question 3. What is the effect of increasing taxes?
A) It stimulates demand and encourages economic activity
B) It reduces demand and slows down the economy
C) It reduces government debt and deficits
D) It increases government debt and deficits

Question 4. Which of the following is NOT a tool of fiscal policy?
A) Government spending
B) Taxation
C) Monetary policy
D) Trade policy

Question 5. How does fiscal policy affect the economy in the long-term?
A) It can lead to higher government debt and deficits
B) It can lead to lower government debt and deficits
C) It has no long-term impact on the economy
D) It can lead to both higher and lower government debt and deficits, depending on the policy