2.6 Fiscal policy

Question 1

What is fiscal policy

Answer 1

a tool the government uses to control aggregate demand by altering taxation and or government spending, it is a demand side policy

Question 2

What type of policy Is fiscal policy

Answer 2

demand side policy

Question 3

What two major components does fiscal policy control

Answer 3

taxation and government spending

Question 4

What is expsnationary or inflationary fiscal policy

Answer 4

increases aggregate demand and closes the inflationary gap

Question 5

What is contractionary or deflationary fiscal policy

Answer 5

decreases aggregate demand and closes the recessionary gap

Question 6

What happens during expansionary fiscal policiy

Answer 6

government spending goes up

taxation goes down

Question 7

What happens during contractionary fiscal policy

Answer 7

Government spending goes down

Taxes increase

Question 8

What are different sources of government revenue

Answer 8

Taxes : 
direct 
indirect
income 
wealth 
VAT
toll 
corporation 
capital gains 

Stamp duty
State owned enterprises
Privatisaiton

Question 9

Types of government expenditure

Answer 9

Healthcare 
Education 
Military 
Infrastructure
Debt
Subsidies 
Job seekers allowance
Housing

Question 10

What are the three types of government spending

Answer 10

1. transfer payments - welfare payments
2. current government spending g- regular spending on public goods and services eg doctors salary
3. capital expenditure - investment on infrastructure eg new hospitals

Question 11

What is a budget surplus

Answer 11

when the government receives more revenue than it spends

Question 12

What is a budget deficit

Answer 12

the government spends more money than it receives

Question 13

What is government debt

Answer 13

the amount of debt the government has

Question 14

What are goals of fiscal policy

Answer 14

low and stable inflation 
low unemployment 
long term growth 
reducing business cycle fluctuations 
equitable distribution of income 
external balance

Question 15

Using a diagram, explain how the government can use fiscal policy to alter the level of AD in an economy. (10 marks)​

Answer 15

plan

Question 16

Evaluation points to remember for fiscal policy

Answer 16

time lag
effective in deep recession

political pressure
sustainable debt

crowding out
conflict in objectives

Question 17

What is crowding out

Answer 17

when government spending fails to increase overall aggregate demand because higher government spending causes an equivalent fall in private sector spending and investment.