Fiscal Policy 2

Question 1

What is structural deficit?

Answer 1

Creating a deficit even when economy is sound

Question 2

Why mat government run a CYCLICAL DEFICIT

Answer 2

tax revenues are lower than normal (less spending/fewer jobs so lower VAT/Income tax)

Question 3

What is automatic fiscal stabilisers?

Answer 3

-growing economy people will spend more on tax, government spend less on unemployment benefits. Increase T and lower G act in AD. in recession OPPOSITE will occur

Question 4

Ways to reduce deficit size?

Answer 4

• Increasing tax levels(UNPOPULAR)
• Austerity, cutting back on public spending
• Boost economic growth