Chapter 26: Fiscal policy

Question 1

Budget

Answer 1

The relationship between government revenue and government spending

Question 2

Budget deficit

Answer 2

Government spending is higher than government revenue

Question 3

Budget surplus

Answer 3

Government revenue is higher than government spending

Question 4

National debt

Answer 4

The total amount the government has borrowed over time

Question 5

Multiplier effect

Answer 5

The final impact on aggregate demand being greater than the initial change

Question 6

Direct taxes

Answer 6

Taxes on income and wealth

Question 7

Indirect taxes

Answer 7

Taxes on expenditure

Question 8

Progressive tax

Answer 8

One which takes a larger percentage of the income or wealth of the rich

Question 9

Proportional tax

Answer 9

One which takes the same percentage of the income or wealth of all taxpayers

Question 10

Regressive tax

Answer 10

One which takes a larger percentage of the income or wealth of the poor

Question 11

Automatic stabilisers

Answer 11

Forms of government expenditure and taxation that reduce fluctuations in economic activity, without any change in government policy

Question 12

Inflation

Answer 12

The rise in the price level of goods and services over time

Question 13

Informal economy

Answer 13

The part of the economy that is not regulated, protected or taxed by the government

Question 14

Flat taxes

Answer 14

Taxes with a single rate

Question 15

Fiscal policy

Answer 15

Decisions on government spending and taxation designed to influence aggregate demand

Question 16

Expansionary fiscal policy

Answer 16

Rises in government expenditure and/or cuts in taxation designed to increase aggregate demand

Question 17

Contractionary fiscal policy

Answer 17

Cuts in government expenditure and/or rises in taxation designed to reduce aggregate demand