Fiscal Policy Flashcards
1
Q
Deficit
A
Primary deficit + interest payments
2
Q
Primary Deficit
A
Gt – Tt
3
Q
Positive Deficit
A
Bt+1 – Bt > 0 → debt increasing
4
Q
Negative Deficit
A
Bt+1 – Bt < 0 → debt decreasing
5
Q
Intertemporal Budget Constraint
A
(1/(1+i)) ∑(1/(1+i))^t (Tt – Gt)
Borrowing is constrained by present value of future primary surpluses
6
Q
Reasons for Budget Moving into Deficit
A
o Automatic stabilisers: more unemployment → more welfare and less tax; less unemployment → less welfare and more tax
o Discretionary stabilisers: one off transfer payments and new infrastructure projects
7
Q
Fiscal Deficit
A
Government deficit
