Fiscal Policy

Question 1

GDP (Gross Domestic Product)

Answer 1

Is the total value of all goods and services produced in the country. It dosen’t matter if it’s produced using foreign factors of production (e.g foreign workers). If they are located within the country’s boundaries, their production is included in GDP.

Question 2

Trend/Potential GDP

Answer 2

Potential output refers to the highest level of real gross domestic product that can be sustained over the long term

Question 3

Inflationary gap

Answer 3

The difference between high actual GDP and the trend/potential GDP

Question 4

Unemployment gap

Answer 4

The difference between low actual GDP and the trend/potential GDP

Question 5

Fiscal policy

Answer 5

Government spending and taxes I.e. budget

Question 6

Expansionary fiscal policy

Answer 6

Gov spending increases, taxes decrease

Question 7

Contractionary fiscal policy

Answer 7

Gov spending decreases, taxes increase

Question 8

Annual budget deficit

Answer 8

Gov spending > taxes

Question 9

Annual budget surplus

Answer 9

Taxes > gov spending

Question 10

Government debt

Answer 10

Sum of all annual deficits and surpluses

Question 11

Macroeconomic Imbalance Procedure

Answer 11

Surveillance mechanism that aims to identify potential macroeconomic risks early on, prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in place

Question 12

External imbalances and competitiveness

Answer 12

They may arise from the evolution of the current account and the net investment positions of Member states, the real effective exchange rates, share of world exports and nominal unit labour cost

Question 13

Internal imbalances

Answer 13

These are imbalances that may arise from public and private indebtedness: financial and asset market developments, including housing and private sector credit flow, unemployment rate

Question 14

Employment indicators

Answer 14

These are activity rate, long-term and youth unemployment rates