4.5 - Deficits + Fiscal Policy

Question 1

What is the fiscal deficit?

Answer 1

Difference between govt expenses and revenues

Question 2

What is discretionary fiscal policy?

Answer 2

Deliberate changes in tax + spending

Question 3

What are automatic stabilisers?

Answer 3

Automatic changes in tax + spending due to economic activity + business cycle

Question 4

Give an example of an automatic stabiliser

Answer 4

Economy grows
Less demand for welfare payments
Govt cuts benefit programmes

Question 5

What is the structural deficit?

Answer 5

Unrelated to state of economy
Underlying deficit
Not influenced by boom/recession

Question 6

What is the cyclical deficit?

Answer 6

Directly influenced by economy + business cycle
Boom reduces deficit
Recession widens deficit

Question 7

Which cyclical factors affect the deficit?

Answer 7

Unemployment
Spending
Profits
Stabilisers

Question 8

Which long run factors affect the deficit?

Answer 8

Size of welfare state
Demographics
Tax base + Rates
Public sector efficiency