Chapter 5: Government Macro intervention

Question 1

Government macroeconomic policies

Answer 1

1. full employment
2. low and stable inflation
3. balance of payments equilibrium
4. steady and sustained economic growth
5. avoidance of exchange rate fluctuations
6. sustainable economic development

Question 2

Fiscal Policy

Answer 2

Government spending and Taxation

Question 3

What does Fiscal Policy influence?

Answer 3

aggregate demand

Question 4

Reflationary fiscal policy

Answer 4

• expansionary fiscal policy
• increase aggregate demand
• increasing government spending
• reducing taxation

Question 5

Deflationary fiscal policy

Answer 5

• contractionary fiscal policy
• lower AD
• reduce government spending
• increase rate of taxation

Question 6

Discretionary Fiscal Policy

Answer 6

deliberate changes in government spending and taxation

Question 7

automatic stabilisers

Answer 7

forms of GS and T that change without deliberate government actions to offset fluctuations in the GDP

Question 8

Examples of Automatic stabilisers

Answer 8

EX. recession

government spending on unemployment benefits automatically rise because there are more unemployed people

tax revenue from corporation tax, income tax and indirect tax will fall automatically as profits, incomes and expenditure decline

Question 9

Fiscal policy in correcting Current account deficit

Answer 9

• ⬆️tax and ⬇️government spending
• Reducing consumer’s purchasing power and consumer expenditure
• Less demand for imports and higher demand to export

Question 10

Fiscal policy in reducing financial account deficit

Answer 10

Improve financial account by attracting foreign direct investment and portfolio investment by providing FISCAL STABILITY
Not making freq changes in taxes and government spending
Achieve budget balance

Question 11

Fiscal policy in correcting Current account deficit

Answer 11

• ⬆️tax and ⬇️government spending
• Reducing consumer’s purchasing power and consumer expenditure
• Less demand for imports and higher demand to export

Question 12

Fiscal policy in reducing financial account deficit

Answer 12

Improve financial account by attracting foreign direct investment and portfolio investment by providing FISCAL STABILITY
Not making freq changes in taxes and government spending
Achieve budget balance