Chapter 19: fiscal policy

Question 1

Current spending

Answer 1

Government spending on day-to0day running of the public sector, including raw materials and wages of public sector workers.

Question 2

Capital spending

Answer 2

Government spending to improve the productive capacity of the nation, including infrastructure, schools and hospitals.

Question 3

Transfer payments

Answer 3

Government payments to individuals for which no service is given in return, e.g. state benefits.

Question 4

Balanced budget

Answer 4

Where government receipts = government spending in a financial year.

Question 5

Budget surplus

Answer 5

Where government receipts exceed government spending in a financial year.

Question 6

Demand-side fiscal policy

Answer 6

Changes in the level or structure of government spending and taxation, aimed at influencing one or more of the components of AD.

Question 7

Discretionary fiscal policy

Answer 7

The deliberate manipulation of government spending and taxation to influence the economy.

Question 8

Expansionary fiscal policy

Answer 8

Increasing levels of government spending relative to tax revenue , appropriate to stimulating AD during a downturn in economic activity.

Question 9

Contractionary fiscal policy

Answer 9

Increasing levels of tax revenue relative to government spending, appropriate during a boom in economic activity.

Question 10

Supply-side fiscal policy

Answer 10

Changes in the level or structure of government spending and taxation, designed to improve the supply side of the economy through influencing incentives to save, to supply labour, to be entrepreneurial, and to promote investment, which are largely microeconomic in nature.

Question 11

Unemployment trap

Answer 11

Where individuals receive more in benefit payments than they would be paid if they were in a job.