Question 1

Which of the following best describes a public good?

Accepted Answer

A good that is non-excludable and non-rivalrous, such as street lighting.

Question 2

Suppose the government increases its spending on infrastructure by N$1 billion while keeping taxes constant. What type of fiscal policy is this, and what is its likely effect on aggregate demand?

Accepted Answer

Expansionary fiscal policy; aggregate demand will increase.

Question 3

Which of the following is an example of a negative externality?

Accepted Answer

Pollution from a factory affecting nearby residents.

Question 4

A progressive tax system is characterized by:

Accepted Answer

An increasing percentage of income paid in taxes as income rises.

Question 5

If the government wants to combat inflation, which fiscal policy action is most appropriate?

Accepted Answer

Decrease government spending and increase taxes.

Question 6

Which of the following is a function of the public sector in the economy?

Accepted Answer

Providing public goods and merit goods.

Question 7

What is the main difference between direct and indirect taxes?

Accepted Answer

Direct taxes are levied on income and wealth, while indirect taxes are levied on transactions and consumption.

Question 8

Which equation best represents the components of aggregate demand in an open economy?

Accepted Answer

$$AD = C + I + G + (X - M)$$

Question 9

A government budget deficit occurs when:

Accepted Answer

Government expenditure is greater than government revenue from taxes.

Question 10

Which of the following is an example of an automatic stabiliser in fiscal policy?

Accepted Answer

Progressive income tax system adjusting tax payments as income changes.

Question 11

If a tax is regressive, which of the following statements is true?

Accepted Answer

Low-income individuals pay a larger percentage of their income in taxes than high-income individuals.

Question 12

Which of the following is NOT a reason for government intervention in the economy?

Accepted Answer

To maximize private sector profits.

Question 13

The crowding-out effect refers to:

Accepted Answer

Government borrowing leading to higher interest rates and reduced private investment.

Question 14

Which of the following is a merit good?

Accepted Answer

Vaccination against diseases.

Question 15

If the government increases income taxes by 5% across the board, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease due to lower disposable income.

Question 16

Which of the following best describes fiscal policy?

Accepted Answer

Deliberate changes in government spending and/or taxes to influence macroeconomic objectives.

Question 17

Which of the following is a direct tax?

Accepted Answer

Personal income tax

Question 18

A proportional tax system means:

Accepted Answer

Taxpayers pay a fixed percentage of their income, regardless of income level.

Question 19

Which of the following is NOT a category of government expenditure?

Accepted Answer

Export expenditure

Question 20

If the government wants to stimulate economic growth during a recession, which combination of fiscal policy actions is most effective?

Accepted Answer

Increase government spending and decrease taxes.

Unit 4: The Public Sector in Macroeconomics

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