Fiscal Policy

Question 1

How doe the fiscal policy work

Answer 1

By the government deflating and reflating the economy

Question 2

Why does the government reflate the economy

Answer 2

To get a budget deficit so to achieve economic growth and more employment

Question 3

Why does the government deflate the economy

Answer 3

To get a budget surplus so can reduce inflation and a balanced of payment deficit

Question 4

What does the government do in a recession

Answer 4

They can budget for a deficit

Question 5

Why does the government have a budget defecit

Answer 5

To spend more on itself so provides more income for others

Question 6

What happens when the government reduce taxes

Answer 6

This increases the disposable incomes of taxpayers

Question 7

What can the government do if the economy is overheating with too much inflation and what is this called

Answer 7

Government spend less
Income fall
Spend less
Less demand 
Less money in the economy 

The multiplier reverse effect

Question 8

Why would the government lower taxes

Answer 8

So more people have higher disposable income and may save it and would have no effect on the government

Question 9

What happens when income rises

Answer 9

Consumer spending rises
More income for firms
More output
Employ more

This is the multiplier effect on the economy with employment,incomes and output rising