chapter 12

Question 1

Fiscal Policy definition

Answer 1

the discretionary management of gvt. spending and/or taxation designed to influence the level of AD

Question 2

Tools of Fiscal Policy

Answer 2

• taxation
  1. direct taxes
  2. indirect taxes
• government expenditure (G)
• effects of budget surplus/deficit

Question 3

Types of Fiscal Policy

Answer 3

expansionary
- increasing (G)
- reducing taxes

contractionary
- decreasing (G)
- increasing taxes

Question 4

Limitations of Fiscal Policy

Answer 4

magnitude
- crowding out effect
- size of multiplier
- forecast error

timing
- time-lag

implementation
- political pressures
- fiscal sustainability

trade-offs with other macro goals

Question 5

What is the Fiscal Policy in Singapore

Answer 5

prudent fiscal policy

Question 6

Fiscal Austerity definition

Answer 6

• decreasing government expenditure
• increasing taxes