A contractionary fiscal policy consists of: MCQ with Answer and Explanation

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A contractionary fiscal policy consists of:

A. increasing money supply

B. reducing government spending or increasing taxes

C. increasing government spending and cutting taxes

D. lowering interest rates

Answer: Option B

Solution (By JKSSB Mock Tests)

Contractionary fiscal policy reduces aggregate demand by cutting spending or raising taxes.

This question belongs to: Economy GK Economy Set 1

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Practice More Economy Set 1 Questions

Question #1

Which of the following is a feature of the 'Real Exchange Rate'?

A. It is simply the nominal exchange rate

B. It is independent of price levels

C. It is determined only by interest rates

D. It is the nominal exchange rate adjusted for relative price levels between countries

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Correct Answer: Option D

Explanation:
The real exchange rate is defined as the nominal exchange rate multiplied by the ratio of foreign to domestic price levels (or the relative price of foreign to domestic goods).

This question belongs to: Economy GK Economy Set 1

Question #2

In the context of cost, the relationship between Average Cost (AC) and Marginal Cost (MC) is:

A. When MC < AC, AC is rising

B. MC is always greater than AC

C. When MC > AC, AC is falling

D. When MC = AC, AC is minimum

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Correct Answer: Option D

Explanation:
When Marginal Cost equals Average Cost, Average Cost is at its minimum. If MC is below AC, AC falls; if MC is above AC, AC rises.

This question belongs to: Economy GK Economy Set 1

Question #3

In the context of elasticity, if the price elasticity of demand is greater than one, demand is said to be:

A. Unitary elastic

B. Perfectly inelastic

C. Elastic

D. Inelastic

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Correct Answer: Option C

Explanation:
When |Ed| > 1, demand is elastic, meaning quantity demanded changes more than proportionately to a change in price.

This question belongs to: Economy GK Economy Set 1

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