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Economic A Level > Fiscal Policy > Flashcards

Fiscal Policy Flashcards

1
Q

What is fiscal policy

A

The use of government spending, taxation or government borrowing to affect the level of economic activity

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2
Q

What method does the government use to manage AD

A

Counter cyclical way
The government does the opposite to what is currently happening in the private sector

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3
Q

What types of budget balances are there

A

Structural
Cyclical

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4
Q

What is structural budget imbalances

A

When governments deliberately budget an imbalance as an expansionary or contractionary policy

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5
Q

What is cyclical budget imbalances

A

When the position of the economy in the trade cycle affects the position of the balance

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6
Q

What are automatic stabilisers

A

They are the features that smooth out the trade cycle
They are transfer payments and progressive income tax

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7
Q

What are transfer payments

A

Payments by the government on the basis of assessed needs and current income

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8
Q

What is a budget deficit

A

When the government spend more than they collect in tax and they to borrow

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9
Q

What happens when the government doesn’t pay off the budget deficit

A

It becomes part of the national debt

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10
Q

What budget position does the UK normally run

A

Deficit

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11
Q

What is a budget surplus

A

It is when the government collect more money from tax than spend

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12
Q

How does the government borrow money

A

By selling bonds

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13
Q

What is the equation for debt burden

A

National debt / GDP x100

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14
Q

What is crowding out

A

When the government increases interest rates to make their bonds look more attractive but means that people spend and invest less

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15
Q

What is one of the problems with national debt

A

Crowding out

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16
Q

What is austerity

A

The painful process of trying to bring stability back to public finances

17
Q

What policies are used during austerity

A

Increased taxes

Cuts in gov spending

18
Q

What is the pro austerity argument

A

Crowding out
Big projects after debt is payed

19
Q

What is the anti-austerity argument

A

Cutting G or increasing T could cause AD to decrease and lead back into recession
Increase GDP instead

20
Q

How can the national debt be dealt with

A

Stabilise the size of the debt - allow inflation to erode real value
Cut Gov spending -
Increase tax revenue
Increase Economic growth - reduces cyclical debt

21
Q

When is expansionary policy used

A

In a recession

22
Q

When is contractionary policy used

A

In a boom

23
Q

What are expansionary fiscal policies

A

Increase G
Decrease T
Borrow money and spend it

24
Q

What side effects are there from expansionary policy

A

Increase in general price level

25
Q

What are contractionary fiscal policies

A

Increase T

Decrease G

26
Q

What is the side effect of contractionary policies

A

Falling output
Falling income
Rising unemployment

27
Q

What are government bonds

A

A loan for the government and is a paper contract or I.O.U to repay the loan

28
Q

What is a bonds nominal value

A

The amount of money originally lent to the government

29
Q

What is the redemption date

A

When the original sum of money is repaid to the holder of the bond

30
Q

What is the coupon or fixed income of a bond

A

It is income paid annually to the bondholder

31
Q

When does the government sell bonds

A

When they need to finance their budget deficit

32
Q

What is the supply of loans

A

Any person that has spare income they dont spend

33
Q

What is the demand for loans

A

Any person who wants to spend more than it earns

34
Q

What are the main credit rating agencies

A

S&P
Moody’s
Fitch

35
Q

What are credit scores

A

The rating a government or person is given based on the likelihood that the debt is repaid

Economic A Level (22 decks)

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