Daily Current Affairs Quiz: August 06, 2025

Statement 1 is correct: Fiscal policy involves adjustments in government spending levels and tax rates to influence the overall economy.

Statement 2 is incorrect: An expansionary fiscal policy, which is aimed at stimulating economic growth, involves increasing government spending or cutting taxes, not combating inflation as mentioned in Statement 2. Expansionary fiscal policy is actually used to combat recession, not inflation. Inflation is typically addressed with contractionary fiscal policy, which involves decreasing government spending or increasing taxes to reduce aggregate demand.

Statement 3 is incorrect: It actually describes expansionary fiscal policy, which is aimed at increasing aggregate demand through tax cuts or increased government spending.

Statement 1 is correct: Expansionary fiscal policy is used to stimulate economic growth, especially during a recession or economic slowdown. It typically involves increasing government spending and/or reducing taxes to boost aggregate demand.

Statement 2 is correct: Contractionary fiscal policy is aimed at controlling inflation by reducing government spending or increasing taxes. This helps to cool down an overheating economy by lowering demand.

Statement 3 is incorrect: Fiscal policy is not just a political tool. It has a significant impact on a country’s economy. Through changes in taxation and government spending, fiscal policy can influence economic growth, employment,

inflation, and income distribution.

Statement 4 is correct: Countercyclical fiscal policy refers to government measures that oppose the current economic trend—such as stimulating the economy during a downturn and slowing it during a boom—to stabilize the business cycle.

Statement 1is Incorrect: Macroeconomics focuses on the aggregate behavior of the economy, looking at things like national income, inflation, unemployment, and economic growth. It does not focus on individual households or firms, which is the domain of Microeconomics.]

Statement 2 is Correct: Controlling inflation is a key goal of macroeconomic policy. High inflation can destabilize the economy, erode purchasing power, and hinder economic growth. Governments and central banks use various tools, such as monetary and fiscal policy, to manage inflation.

Statement 3 is Incorrect: Macroeconomics studies both national income and wealth distribution. While national income provides a measure of the overall economic output, wealth distribution is crucial for understanding income inequality, social equity, and the long-term health of the economy.

Statement-I is incorrect: Economic growth does not always lead to inflation. While growth can increase demand and potentially raise prices, it is not guaranteed to cause inflation. Other factors such as productivity gains, supply-side improvements, and monetary policy can offset inflationary pressures. Hence, inflation is not an inevitable outcome of economic growth.

Statement-II is correct: As an economy grows, aggregate demand typically increases. This higher demand for goods and services can put upward pressure on prices, which may lead to inflation—especially if supply doesn’t keep pace. So, the reasoning in Statement-II is generally valid.

An increase in capital investment is most likely to contribute to economic growth as it leads to an expansion of the productive capacity of the economy, enabling more goods and services to be produced.