5- role of the state in the macro economy Flashcards
usages of public expenditure
-to control AD
-Achieve macroeconomic objectives
-to improve equity and equality
-can correct market failure
types of public expenditure
-capital government expenditure
(spending on investment goods like infrastructure)
-transfer payments
(money taken from one group and given to another)
-interest payments for national debt
what are the major areas of expenditure
healthcare 18%
transport 2%
welfare 15%
pensions 20%
education 12%
protection 4%
defence 6%
composition and size of public expenditure
in lower income countries, expenditure will be lower due to lower tax revenues
impacts of expenditure
-productivity and growth^
-living standards^
-crowding out^
-level of taxation^
-equality^
Types of taxation
-progressive
-proportional
-regressive
progresive tax
as income rises, higher percentage of tax is paid (income tax)
regressive tax
as income rises, a smaller percentage of tax is paid (VAT)
proportional tax
everyone spends the same percentage of income on tax
impacts of tax changes
-incentives to work
-income distribution
-real output and employment
-price level
-trade balance
-FDI flows
automatic stabilisers
reduce the impact of changes in the economy
discrete fiscal policy
the deliberate manipulation of expenditure and taxation
fiscal deficit
when the government spends more than it receives
national debt
sum of all the government debts built up over man years
structural deficit
the deficit that occurs when the cyclical deficit is 0. has no relation to the state of the economy, likely that debt will grow over time
cyclical deficit
part of the deficit that occurs with the government spending and tax fluctuate
fa tors influencing the size of fiscal deficits
-government aims
-interest rates
-privatisation
-unforseen events
-trade cycle
factors influencing the size of national debts
-if the government continuously run a deficit, the debt will get worse
-ageing population
significance of fiscal deficits and national debt
-high fiscal deficits can cause inflation
-government borrowing can benefit growth if spent on capital spending
uses of macroeconomic policies
-reduce fiscal deficit and debt
-reducing poverty and inequality
-changes in interest rate and money supply
-international competitiveness
