Fiscal policy

Question 1

What policy did UK follow during COVID

Answer 1

Expansionary fiscal policy

Question 2

What type of government spending occured during COVID

Answer 2

Blank cheque to NHS e.g fund vaccines, test kits etc
Wage subsidies (furlough)

Question 3

What happened to taxation during COVID

Answer 3

VAT cuts

Business rate exemptions

Question 4

Current budget deficit

Answer 4

5.6% of GDP

Question 5

What policy are the UK following now?

Answer 5

Contractionary fiscal policy

Question 6

What has happened to taxation now

Answer 6

National insurance up 1.25%

Corp tax 19>25% next year

Income tax-freezing bands *fiscal drag

Question 7

Why has tax increased

Answer 7

Reduce deficit and debt

Confidence in gov finances, so they can borrow in future at lower interest rates by selling bonds (long term benefit)

Question 8

Expansionary fiscal policy cons (4)

Answer 8

Worsening of gov. finances-budget deficit-national debt
Demand pull inflation
Crowding out
Time lags (people don’t immediately increase consumption following tax cuts)

Question 9

Fiscal policy evaluations

Answer 9

Depends where along LRAS operating (if near Yfe, may just increase inflation)
Size of multiplier
Confidence may remain low
Long returns from public expenditure/tax cuts (in short run may be worst)
Laffer curve