2.3 UNEMPLOYEMENT (SOLUTION - FISCAL POLICY)

Question 1

what is the fiscal policy

Answer 1

refers to the use of government spending and taxation to influence the overall health of the economy

Question 2

what are the two main components of the fiscal policy

Answer 2

• government spending
• taxation

Question 3

explain aspect of government spending (FP)

Answer 3

this involves the allocation of funds by the government for various purposes such as infrastructure development, education and healthcare

Question 4

explain aspect of taxation (FP)

Answer 4

the process of collecting revenue from individuals and businesses. changes in tax rates can impact consumer spending, investment and overall economic activity

Question 5

what is expansionary fiscal policy

Answer 5

refers to government measures aimed at stimulating economic growth by increasing public spending and/or reducing taxes - the prime goal is to boost aggregate demand

Question 6

what is the Keynesian approach in relation to the fiscal policy

Answer 6

The Keynesian approach supports the use of fiscal policy as a tool to combat unemployment

Question 7

advantages of fiscal policy

Answer 7

• can help stabilize the economy during downturns
• allows for targeted support to specific sectors or groups
• Increased government spending can lead to job creation and reduced unemployment rates
• can fund essential public services and infrastructure, contributing to long-term economic growth
• It can counteract economic cycles, helping to smooth out booms and busts

Question 8

disadvantages of fiscal policy

Answer 8

• there can be significant delays in implementing fiscal policy measures
• increased government spending can lead to budget deficits and higher public debt
• can lead to inflation if the economy is already at or near full capacity
• decisions may be influenced by political considerations rather than economic needs
• increased government borrowing can lead to higher interest rates, potentially crowding out private investment