2.2.4- Government Spending Flashcards
What are the influences on government spending?
-the trade cycle
-fiscal policy
-age distribution
How does the trade cycle influence government expenditure?
-in a recession, the gov may increase spending to increase demand to reduce unemployment. Spending also automatically rises during a recession as they have to spend more on unemployment benefits
-during booms the government may decrease spending to decrease demand and reduced inflation
What is fiscal policy?
The control of government spending and taxation
What is discretionary fiscal policy?
A policy which is implemented through one off policy changes
What are automatic stabilisers?
Policies which offset fluctuations in the economy
How are automatic stabilisers triggered?
Without government intervention (automatically)
What happened to automatic stabilisers during a recession?
Tax revenues fall as unemployment rises, therefore spending on welfare benefits will increase automatically
What does the effectiveness of automatic stabilisers depend on?
How generous the welfare system is
How does fiscal policy influence gov expenditure?
-during periods of decline, the gov may use expansionary fiscal policy by spending more on transfer payments or reducing taxes
-during periods of economic growth, govs may use contractionary fiscal policy by decreasing expenditure on purchases and transfer payments or by increasing tax rates
How does age distribution influence gov spending?
-an ageing population leads to increased spending on pensions, whilst a young population means increased spending on education
What is a budget deficit?
When gov spending is greater than tax revenue
What is cyclical fiscal deficit?
The size of the deficit is influenced by the state of the economy
What is structural fiscal deficit?
The part of the deficit that isn’t related to the state of the economy
