Lesson M3.1.2

M3.1.2 Effectiveness of fiscal policy, debt, crowding out and the Laffer curve Quiz: OCR Economics, Unit 8

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M3.1.2, Effectiveness of fiscal policy, debt, crowding out and the Laffer curve: 20 multiple choice questions for the OCR Economics (H460), Unit 8: Implementing policy, written with Revision Ninja.

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The 20 questions

  1. What term describes the total accumulated borrowing of a government over time?

    • Trade deficit
    • Fiscal deficit
    • National debt
    • Budget deficit

  2. Which term describes an annual shortfall when government spending exceeds tax revenue?

    • National debt
    • Current account deficit
    • Trade deficit
    • Budget deficit

  3. Which curve illustrates the theoretical relationship between tax rates and total tax revenue?

    • Phillips curve
    • Lorenz curve
    • Kuznets curve
    • Laffer curve

  4. According to the Laffer curve, what happens to total tax revenue beyond the optimal rate?

    • It falls
    • It doubles
    • It rises
    • It stays constant

  5. What type of crowding out occurs when increased government borrowing drives up market interest rates?

    • Social crowding out
    • Physical crowding out
    • Financial crowding out
    • Resource crowding out

  6. Which type of crowding out occurs when government spending directly absorbs physical factors of production?

    • Resource crowding out
    • Liquidity crowding out
    • Monetary crowding out
    • Financial crowding out

  7. If the marginal propensity to consume is 0.8, what is the value of the fiscal multiplier?

    • 5
    • 1.25
    • 4
    • 0.2

  8. What is the multiplier if the marginal propensity to save is 0.25 in a closed economy?

    • 0.25
    • 2.5
    • 5
    • 4

  9. If government spending increases by £10 billion and the MPC is 0.75, what is total GDP increase?

    • £40 billion
    • £13.3 billion
    • £7.5 billion
    • £30 billion

  10. What term describes mechanisms like progressive taxes that automatically stabilise aggregate demand during cycles?

    • Discretionary fiscal policy
    • Automatic stabilisers
    • Monetary policy rules
    • Quantitative easing

  11. What type of budget deficit persists even when the economy is operating at its trend growth rate?

    • Automatic deficit
    • Seasonal deficit
    • Structural deficit
    • Cyclical deficit

  12. A budget deficit caused purely by a temporary economic downturn is known as what?

    • Primary deficit
    • Structural deficit
    • Capital deficit
    • Cyclical deficit

  13. Which measure represents the government budget deficit excluding debt interest payments?

    • Primary deficit
    • Cyclical deficit
    • Structural deficit
    • Gross deficit

  14. High income tax rates cause skilled workers to migrate abroad. Which concept does this illustrate?

    • Financial crowding out
    • Laffer curve effect
    • Multiplier effect
    • Fiscal drag

  15. What phenomenon occurs when inflation pushes taxpayers into higher income tax brackets without real wage gains?

    • Fiscal stance
    • Automatic stabiliser
    • Crowding in
    • Fiscal drag

  16. What term describes the process where public investment encourages and increases private sector investment?

    • Crowding out
    • Multiplier decay
    • Capital flight
    • Crowding in

  17. If national debt is £2 trillion and national annual GDP is £2.5 trillion, what is the debt-to-GDP ratio?

    • 80%
    • 800%
    • 125%
    • 20%

  18. Which problem limits discretionary fiscal policy due to delays in recognising, planning, and implementing spending?

    • Moral hazard
    • Liquidity trap
    • Menu costs
    • Time lags

  19. Which independent body forecasts public finances for the UK government?

    • Bank of England
    • Office for Budget Responsibility
    • HM Treasury
    • Competition and Markets Authority

  20. According to Ricardian Equivalence, why might consumers save rather than spend a debt-funded tax cut?

    • Higher interest rates
    • Lack of confidence
    • Falling inflation rates
    • Expected tax increases

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