4.5.3 Public sector finances

Question 1

Automatic stabilisers

Answer 1

Government policies that are designed to automatically adjust spending and
taxation in response to changes in the economy.
- Examples: unemployment insurance, progressive income taxes, and welfare programs.

Question 2

Discretionary fiscal policy (govt spending)

Answer 2

Government spending that is decided upon by
policymakers through the annual budgeting process.
Includes items such as infrastructure projects,
national defense, education, and healthcare
programs.

Question 3

Fiscal deficit vs National debt

Answer 3

Déficit: when government spending
exceeds government revenue. As result the
government needs to borrow money that year
(adding to the debt).
Debt: the TOTAL the government owes, as a result of previous years’ deficits.