Fiscal Policy

Question 1

Fiscal policy definition

Answer 1

Changes to taxes, expenditure and borrowing that are intended to control the level of economic activity.

Question 2

What are fiscal policies used for in macro and microeconomics?

Answer 2

Macro:
• Manage output gaps
• Increase productive capacity

Micro:
• Provide public and merit goods
• Discourage demerit goods
• Manage income distribution

Question 3

What is a balanced budget?

Answer 3

Taxes = Expenditure

No bias for expansion or contraction

Question 4

What is a budget deficit?

Answer 4

Taxes < Expenditure

Net injection helps the complications grow in the short term - debt rising.
(Expansionary Fiscal Policy)

Question 5

Expansionary fiscal policy definition

Answer 5

Changes to taxes, expenditure and borrowing that aim to increase the level of economic activity.

Question 6

What is a budget surplus?

Answer 6

Taxes > Expenditure

Net leakage reduces economic growth in the short term - debt falling.
(Contractionary Fiscal Policy)

Question 7

Contractionary Fiscal Policy

Answer 7

Changes to taxes, expenditure and borrowing that aim to deuce the level of economic activity.