Fiscal Policy

Question 1

what is fiscal policy

Answer 1

the use of government spending and taxation to influence AD in the economy

Question 2

two types of policy

Answer 2

expansionary and contractionary

Question 3

expansionary fiscal policy

Answer 3

to increase economic growth
reduce taxes and increases government spending

Question 4

contractionary fiscal policy

Answer 4

slow down economic growth
increase tax and decrease government spending

Question 5

what is a balanced budget

Answer 5

government revenue= government expenditure

Question 6

what is a budget deficit

Answer 6

when gov revenue< gov expenditure

Question 7

what is budget surplus

Answer 7

gov revenue > gov expenditure

Question 8

what macroeconomic objective does fiscal policy aim to achieve

Answer 8

low and stable rate of inflation
maintain low unemployment
long term economic growth
more equity
control lvl of exports and imports

Question 9

microeconomic impacts of fiscal policy

Answer 9

income tax cuts lead labour force being more productive
tax cuts= more productive
subsidies lower costs of production = higher output

Question 10

graph of expansionary fiscal policy

Answer 10

shift of AD to the right

Question 11

example of expansionary fiscal policy: government decreases corporation tax

Answer 11

net profit increase ~ investment increases~ AD decreases
helps achieve macroeconomic objectives

Question 12

example of expansionary fiscal policy: increases unemployment benefits

Answer 12

household income rises~ consumption increases~ AD increases
economic growth increase
inflation rise
redistribution of income

Question 13

diagram of contractionary fiscal policy

Answer 13

AD shifting to the left with the keynesian LRAS

Question 14

example of contractionary fiscal policy: increase the rate of income tax

Answer 14

household pays more tax~ avaliable income decreases~ consumption reduces~ AD reduces

Question 15

example of contractionary fiscal policy: gov reduces public sector workers pay

Answer 15

wages stagnate~ consumer confidence falls~ consumption decreases~ AD decreases

Question 16

effect of gov cutting gov spending in their budget

Answer 16

less demand for good~ less income for firm~ output decrease~ AD decreases

Question 17

when is the government budget set

Answer 17

usually set once a year

Question 18

what are automatic fiscal policies called

Answer 18

automatic stabilisers

Question 19

what are automatic stabilisers

Answer 19

automatic fiscal changes that occur as the economy moves through stages of the business cycle

Question 20

Effect of automatic stabilisers in a recession

Answer 20

since unemployment rises gov will pay higher unemployment benefits which will then be used for consumption

Question 21

effects of automatic stabilisers in a boom

Answer 21

households are taxed more
gov will pay fewer unemployment benefits
real GDP will be lower

Question 22

sources of gov revenue

Answer 22

taxation
sales of goods and services
the sales of good and services
the sales of government owned assets