Title: QUIZ: Fiscal Policy: The Basics of Taxation and Government Spending Module
Course: Recommended Resources for AP Macro from FRE > Section: Unit 3: National Income and Price Determination

Q: When might the government use active fiscal policy to affect the economy?
- When economic activity declines and there is a rising level of unemployment
- When the government fails to balance the budget
- When revenue drops below a pre-determined threshold
- When there is decreasing demand for transfer programs
A: When economic activity declines and there is a rising level of unemployment
If right: That is correct!
If wrong: That is incorrect. Congress and the president can initiate active fiscal policy when the economy experiences a decline in economic activity with rising levels of unemployment.

Q: Which of the following describes “mandatory spending"?
- Expenditures the government approves on an ongoing basis; for example, funding paid for defense, education, and transportation
- Expenditures paid automatically by the government as determined by current law; for example, funding paid for Social Security, unemployment compensation, and Medicare
- Costs individuals must pay by law; for example, income tax
- As required by law, an increase in government spending to strengthen a weak economy
A: Expenditures paid automatically by the government as determined by current law; for example, funding paid for Social Security, unemployment compensation, and Medicare
If right: That is correct!
If wrong: That is incorrect. Mandatory spending happens automatically as determined by current law. It includes funding transfer payments and programs like Social Security and Medicare.

Q: Which of the following describes “discretionary spending"?
- Expenditures the government approves on an ongoing basis; for example, funding paid for defense, education, and transportation
- Expenditures paid automatically by the government as determined by current law; for example, funding paid for Social Security, unemployment compensation, and Medicare
- Costs individuals must pay by law; for example, income tax
- As required by law, an increase in government spending to strengthen a weak economy
A: Expenditures the government approves on an ongoing basis; for example, funding paid for defense, education, and transportation
If right: That is correct!
If wrong: That is incorrect. Discretionary spending are expenditures the government approves on an ongoing basis; for example, funding paid for defense, education, and transportation.

Q: The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year, adjusted for inflation is known as _____________.
- GDP
- real GDP
- per capita GDP
- GNP
A: real GDP
If right: That is correct!
If wrong: That is incorrect. The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year, adjusted for inflation is known as real GDP.

Q: Which of the following pairs of terms is used to describe fluctuations in the economy?
- Real and nominal
- Expand and contract
- Revenue and expenditure
- Deficit and debt
A: Expand and contract
If right: That is correct!
If wrong: That is incorrect. The terms “expand” and “contract” generally refer to fluctuations in the economy.

Q: Fill in the blanks:
A(n) ______________ is a significant decline in general economic activity over an extended period that includes declining real income and rising unemployment. In contrast, a(n) ______________ is a more severe and long-lasting economic downturn that results in a drastic reduction in gross domestic product.
- inflation, recession
- recession, inflation
- depression, recession
- recession, depression
A: recession, depression
If right: That is correct!
If wrong: That is incorrect. A recession is a gradual slowing of the economy over an extended period resulting in declines in GDP and rising unemployment. A depression is a severe and long-lasting economic downturn.

Q: Which of the following best defines government revenue?
- Income people receive for work they do in the economy
- Income the government receives from taxes and other nontax sources
- A tax making low-income earners pay a larger fraction of their income in taxes than high-income earners
- A tax making high-income earners pay a larger fraction of their income in taxes than low-income earners
A: Income the government receives from taxes and other nontax sources
If right: That is correct!
If wrong: That is incorrect. Government revenue is income the government receives from taxes and other nontax sources.

Q: Which of the following is the definition of government expenditures?
- Money the government spends to buy goods and services or to provide transfer payments
- An itemized summary of probable government revenue and expenses for a given period
- Central bank actions using interest rate or money supply tools to achieve goals such as stable prices, maximum employment, and moderate long-term interest rates
- The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year
A: Money the government spends to buy goods and services or to provide transfer payments
If right: That is correct!
If wrong: That is incorrect. Government expenditures are money the government spends to buy goods and services or to provide transfer payments.

Q: Which of the following is a general, sustained upward movement of prices for goods and services in an economy?
- Inflation
- Expenditures
- Budget deficit
- Stimulus package
A: Inflation
If right: That is correct!
If wrong: That is incorrect. Inflation is a general, sustained upward movement of prices for goods and services in an economy.