Fiscal Policy

Question 1

Define fiscal policy

Answer 1

Government policy regarding government expenditure and taxes

Question 2

Define stabilisation policy

Answer 2

Action undertaken by government to keep actual and trend output close

Question 3

Define budget deficit

Answer 3

When government expenditure exceeds tax revenue

Question 4

Define national debt

Answer 4

Stock of outstanding government debt

Question 5

What is disposable income with government in economy?

Answer 5

Yd=Y-NT

Question 6

Define aggregate demand with a government

Answer 6

AD=C(0)+c(Y-NT)+I+G

Question 7

What is the equilibrium level of output with government

Answer 7

(1/1-c)(C(0)-cNT+I+G)

Question 8

What is the balanced budget multiplier

Answer 8

If the government increase net taxes and government expenditure by the same amount it will result in an overall increase in AD and therefore output because G flows directly into the economy whereas NT flow indirectly in through the consumption function

Question 9

What is savings? (with government)

Answer 9

Y-C-NT=I+G-NT

savings finance private investment and the public deficit

Question 10

Define automatic stabilisers

Answer 10

Mechanisms in the economy that help reduce the change in output in response to an economic shock