4.5.3 public sector finances

Question 1

Define automatic stabilizers?

Answer 1

They are mechanisms that reduce the impact of changes in the economy on national income.

national income the value of goofs and services output

Question 2

is gov spending and taxation known as automatic stabilizers?

Answer 2

yes

Question 3

is gov spending and taxation known as automatic stabilizers?

Answer 3

yes

Question 4

what happens when there is a recession?

Answer 4

during a recession benefits will rise as more people are unemployed so benefits will act as a stabilizer this means the fall in AD will be reduced.

Question 5

what happens during a boom in the economy?

Answer 5

when there is a boom this means tax rates will rise as more people have jobs therefore their disposable income will rise which means the role of tax will reduce their income levels-this will lead to a fall in consumption and AD won’t grow.

Question 6

eval-what is the problem with automatic stabilizers?

Answer 6

This actually may act as a disincentive to work, which may lead to high unemployment, and as for people who are in current employment their incentive to work hard will slow down.

Question 7

what is discretionary fiscal policy?

Answer 7

This is a deliberate manipulation of gov expenditure and taxes to influence the economy which consists of expansionary and deflationary policy.

Question 8

define national debt?

Answer 8

this is the sum of all gov debt built over many years.

Question 9

define fiscal deficits?

Answer 9

this is when the government spends more than it receives.

Question 10

define cyclical deficit?

Answer 10

this happens when gov spending and tax fluctuates around the trade cycle

Question 11

what happens during a recession in terms of cyclical deficit?

Answer 11

tax revenues will be low and spending will be high creating a larger deficit.

Question 12

what happens during a peak in terms of cyclical deficit?

Answer 12

during the peak of the boom there is no cyclical deficit but there is structural deficit. This is because cyclical deficit is zero which is not related to the state of the economy.

Question 13

what does actual deficit consist of?

Answer 13

-structural deficit + fiscal deficit

Question 14

what does the government have?

Answer 14

• structural deficit
• structural surpluses
• structural balances

Question 15

what is structural surplus?

Answer 15

this happens when there is a peak during a boom period- there will be an actual fiscal surplus

Question 16

define structural balance?

Answer 16

there is a pea during a boom when actual fiscal balance is zero