2.6.2 definitions

Question 1

Define fiscal stimulus

Answer 1

Government measures, normally involving increased public spending and lower direct and/or indirect taxation, aimed at giving a positive jolt to economic activity.

Question 2

Define fiscal stability

Answer 2

Many governments seek to maintain a degree of balance between tax revenues and public sector spending. A balanced budget is one in which spending equal revenue.

Question 3

Define finetuning

Answer 3

Changes in monetary policy or fiscal policy designed to gradually manage the level of aggregate demand and prices e.g. small changes in policy interest rates / taxation

Question 4

Define monetary stimulus

Answer 4

Changes in monetary policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit

Question 5

Define national debt

Answer 5

A government’s total outstanding debt - effectively what the government still owes from the budget deficits accumulated over time.

Question 6

Define regressive tax

Answer 6

With a regressive tax, the rate of tax paid falls as incomes rise – I.e. the average rate of tax is lower for people on higher incomes. Examples: Duties on tobacco and alcohol.

Question 7

Define progressive tax

Answer 7

With a progressive tax, the marginal rate of tax rises as income rises. I.e. as people earn more income, the rate of tax on each extra pound goes up. This causes a rise in the average rate of tax

Question 8

Define structural budget deficit

Answer 8

The structural deficit is that part of the deficit which is not related to the stateof the economy. This part of the fiscal deficit will not disappear when the economy recovers.

Question 9

define time lag

Answer 9

The time it takes for one change e.g. a change in interest rates to affect other variables e.g. consumer confidence and spending