4.3 Fiscal policy

Question 1

Define government budget. [3]

Answer 1

The government’s financial plans [1] in terms of planned revenues (mainly tax revenues) [1] and expenditures like healthcare [1].

Question 2

Define a balanced budget. [1]

Answer 2

The government manages to balance its revenues and spending. [1]

Question 3

Define a budget deficit. [1]

Answer 3

The government spends more money than it collects from revenues. [1]

Question 4

Define a budget surplus. [1]

Answer 4

The government collects more money than it spends. [1]

Question 5

Why do governments want to balance their budgets? [2]

Answer 5

Because increase government revenue by raising taxes is unpopular [1], and it is very expensive to fund a budget deficit. [1]

Question 6

What are the reasons for government spending? [3]

Answer 6

To provide essential services like healthcare by the public sector [1], redistribute income and wealth by providing benefits [1], and correct market failures by providing subsides. [1]

Question 7

Define a tax. [1]

Answer 7

A government levy on income or expenditure. [1]