2.4 macroeconomic policy

Question 1

what is fiscal policy

Answer 1

Fiscal policy involves changes in government spending,
taxation and the level of government borrowing to help
achieve some of the micro and macroeconomic objectives
of the government.

Question 2

what are the main instruments of fiscal policy

Answer 2

• gov spending
• taxation
• budget balance

Question 3

key roles for fiscal policy

Answer 3

• correcting market failures
• changing the final distribution of income and wealth
• stabilising and stimulating aggregate demand
  -improving economy’s supply side potential
• responses to crisis caused by external shocks

Question 4

what is government spending

Answer 4

Government spending, also known as public expenditure,
refers to money that a government allocates to fund
various state-provided programmes and public services.
These expenditures are typically financed through taxes
and government borrowing (such as issuing bonds).

Question 5

what is taxation

Answer 5

Taxation is the process by which governments collect
revenue from individuals, businesses, and other entities to
finance public services, infrastructure, and various
government functions.

Question 6

microeconomic effects of fiscal policy

Answer 6

-taxation and work incentives
-Changes to the tax and benefit system also seek to reduce the risk of the ‘poverty trap’.
-The use of indirect taxation and subsidies is often justified on the grounds of instances of market failure.