4.5.3 public sector finances Flashcards
1
Q
What is meant by a fiscal deficit?
A
- when a government receives less income through tax receipts and other government revenues than it spends
2
Q
What is meant by the national debt?
A
- The total amount of money owed by the government
3
Q
What is a cyclical deficit?
A
- The part of the deficit that arises as a result of fluctuations in the economic cycle
4
Q
Why might a cyclical deficit disappear?
A
- When the economy is expanding and growing, tax receipts go up and government spending goes down decreasing the cyclical deficit
5
Q
What is a structural deficit?
A
- Deficit that persists regardless of the position of the economy in the economic cycle.
6
Q
Why is a structural deficit considered to be a problem?
A
- because borrowing becomes increasingly unsustainable or expensive. And due to this gov cannot recover from it.
7
Q
What are some factors which might affect the size of the fiscal deficit?
A
- Economic cycle
- Level of interest payments (Higher bond yields will increase interest payments and the budget deficit.)
- Fiscal Policy
8
Q
What are some factors which might affect the size of the national debt?
A
- Increased borrowing
- Increased spending
9
Q
How do the sizes of fiscal deficits and national debts affect inflation?
A
- The government may increase the money supply to pay the debt, and this will lead to inflation
10
Q
How do the sizes of fiscal deficits and national debts affect the country’s credit rating?
A
- The higher the debt and if the country is not able to pay it back within a time period, the credit rating decreases as the economy is seen to be unreliable
11
Q
How do the sizes of fiscal deficits and national debts affect FDI?
A
- If the fiscal deficit is seen to be high this makes the economy look unattractive to invest in
- High national debt makes the economy seem unreliable which deters FDI
