Fiscal Policy

Question 1

What is fiscal policy

Answer 1

Fiscal policy is the use of Government expenditure and taxation to influence AD/AS in order to achieve the macroeconomic objectives.

Question 2

What does higher government spending bring

Answer 2

Higher government spending will create jobs and provide an economic stimulus, also better public services and subsidys

Question 3

What are the The purpose of taxes

Answer 3

The purpose of taxes are Taxes help to raise finance for G (provide provision of public and merit goods)

Redistribution of income

Achieve macro objectives by AD/AS

Solve market failure such as externalities

Question 4

What is PSNCR

Answer 4

The amount by which UK government expenditure exceeds its income / tax revenue

Question 5

What is negative PSNCR

Answer 5

negative PSNCR is a budget surplus which allows the government to pay off some of the debt

Question 6

What are the 5 main areas governments spend in

Answer 6

social welfare, pensions, Healthcare, Education and defence

Question 7

What are the 5 areas of tax funding

Answer 7

Income tax, Value added Tax (VAT), National insurance, Corporation tax and excise duties.

Question 8

What will a rise in taxes do

Answer 8

give a disincentive to work but giving a higher tax revenue

Question 9

What does a laffer curve show

Answer 9

A laffer curve shows the relationship between tax revenue and tax rate, there is a point in the laffer curve where tax rate is at its peak while still maintaining high tax revenue.

Question 10

What is current expenditure

Answer 10

money spent on day to day running costs, for example, government spending on wages of public sector workers or buying raw materials.

Question 11

What is capital expenditure

Answer 11

spending on increasing your fixed assets, for example, building a hospital, buying equipment or building a new road.

Question 12

What is direct tax

Answer 12

a type of tax which is paid for by an individual directly to the government e.g income tax

Question 13

What is indirect tax

Answer 13

Indirect tax is charged on producers of goods and services and is paid by the consumer indirectly e.g VAT, excise duties

Question 14

What are automatic stabilisers

Answer 14

automatic fiscal changes as the economy changes, they help people against changes in the economy

Question 15

What is expansionary fiscal policy

Answer 15

when the Government tries to increase AD through the use of G and/or T.

Question 16

What do Keynesian economists believe about fiscal policy

Answer 16

fiscal policy should be used differently in certain times in the economy such as if the economy is in a boom period the government should increase taxes and spend less on the economy, while if the economy is in a recession the government should reduce taxes and spend more on the economy.

Question 17

What does demand side policy affect

Answer 17

influence AD and will affect output, employment and inflation.

Question 18

What is the aim for fiscal policy on employment

Answer 18

to reach maximum employment to increase output

Question 19

how does fiscal policy lower inflation

Answer 19

increasing taxes which decreases investments and consumption and cut spending, but this counter acts the goal of increasing AD.

Question 20

How does fiscal policy increase the output

Answer 20

an increase in AD which will increase GDP fiscal policy’s can do this as decreasing taxes for consumers and spend more and also increasing employment

Question 21

What is the purpose of supply side fiscal policy

Answer 21

The purpose of supply side fiscal policy is to increase the productive potential of the economy and to increase trend growth rates

Question 22

What are the types of supply side policy

Answer 22

Free market and Interventionist

Question 23

How does an increase in AS affect the economy

Answer 23

Lower inflation, Lower unemployment, Improved economic growth and Improved balance of payments

Question 24

What is the Keynesian economists view of supply side policy

Answer 24

to increase AS during a depression/recession – the macroeconomic equilibrium will not be affected and there will not be an increase in output or employment.

Question 25

How will decreasing taxes affect supply

Answer 25

It will increase supply as incentive to work and work harder as less income tax, this can increase employment, also, for firms less corporation tax an increase in investment, therefore produce more, But people may demand more as more disposable income

Question 26

How will increasing taxes affect supply

Answer 26

Decrease but on the other hand, higher taxes will increase government spending which will be spent on more capital spending increasing efficiency like more roads.