3.1 Fiscal Policy

Question 1

What is a fiscal policy?

Answer 1

Involves all the manipulation of government spending and/or the overall level of taxation in an economy over a given period of time

Question 2

What is an expansionary stance?

Answer 2

Government spending is higher than tax revenue
(Budget deficit)

Question 3

What is a deflationary stance ?

Answer 3

Government spending is lower than tax revenues
(Budget surplus)

Question 4

What is exhaustive spending and non exhaustive spending?

Answer 4

Exhaustive spending is public sector spending on goods and services (affects AD directly)
Non exhaustive spending is public spending on transfer payments (affects AD indirectly: government spending on transfer payments such as benefits, subsidies are accounted for their affect on consumption and investment (C and I but not G)