4.5.3 Public Sector Finances

Question 1

What are automatic stabilisers?

Answer 1

• these are automatic fiscal changes as the economy moves through stages of the trade cycle

Question 2

What is discretionary fiscal policy?

Answer 2

• a demand side policy that uses government spending and tax policy to influence AD

Question 3

What is a fiscal deficit?

Answer 3

• its the government spends more than they gain

Question 4

What is a national debt?

Answer 4

• its the sum of all government debt built up over the years

Question 5

What are structural deficits?

Answer 5

• when the economy is operating at a normal, sustainable level of employment and activity

Question 6

What is a cyclical deficits?

Answer 6

• portions of a country’s budget deficit which reflects changes in the economic cycle

Question 7

Factors that influence size of the fiscal deficit

Answer 7

• the economic cycle ( boom or recession )
• unforeseen events ( COVID )
• level of interest rates
• one-off payments ( nationalisation )
• political parties + ideologies

Question 8

Factors influencing the size of national debt

Answer 8

• current events
• automatic stabilisers and economic conditions
• finance investment
• political convenience

Question 9

How does interest rates increase national debt?

Answer 9

• if the gov borrow more = can cause interest rates to increase
• due to the fact they will increase interest rates in order to attract investors

Question 10

How does national debt lead to debt servicing?

Answer 10

• debt needs to be paid back and so accumulating debt can make it more expensive in the future

Question 11

How does national debt lead to intergenerational equity

Answer 11

• the government may have to increase taxes or cut spending in order to reduce the deficit