Fiscal Policy

Question 1

What is Fiscal Policy

Answer 1

This is a Govt. policy regarding taxation, spending and borrowing to influence AD.

Question 2

Definition of Expansionary Fiscal Policy

Answer 2

This involves lower taxation, to encourage spending and thus boost AD.

• G > Tax Revenue

Question 3

Definition of Contractionary Fiscal Policy

Answer 3

This involves higher taxation, to reduce spending and reduce AD.

• G

Question 4

Definition of Direct Taxation

Answer 4

A tax levied directly on an individual or organisation. e.g. income tax

Question 5

Definition of Indirect Taxation

Answer 5

A tax levied on expenditure on goods and services. e.g. VAT

Question 6

Definition of Budget Balance

Answer 6

The annual difference between Government Spending and Tax Revenues

Question 7

Definition of Budget Deficit

Answer 7

The amount the Govt. must borrow to finance overall spending.

• G > T

Question 8

Problems with Govt. Borrowing

Answer 8

• National Debt will increase