fiscal policy

Question 1

what does fiscal policy involve?

Answer 1

fiscal policy involves government spending and taxation to influence aggregate demand

Question 2

what can fiscal policy be used to influence?

Answer 2

fiscal policy can be used to influence the economy as a whole or individual firms and people

Question 3

what are the two types of fiscal policy?

Answer 3

the two types of fiscal policy are contractionary fiscal policy and expansionary fiscal policy

Question 4

what does contractionary fiscal policy involve?

Answer 4

contractionary fiscal policy involves reducing aggregate demand

Question 5

what is contractionary fiscal policy also known as?

Answer 5

contractionary fiscal policy is also known as deflationary fiscal policy

Question 6

how does contractionary fiscal policy reduce aggregate demand?

Answer 6

contractionary fiscal policy reduces aggregate demand by reducing government spending or increasing taxes

Question 7

when is contractionary fiscal policy likely to be used?

Answer 7

contractionary fiscal policy is likely to be used during a boom or when there is a positive output gap

Question 8

what happens when a contractionary fiscal policy is used?

Answer 8

when a contractionary fiscal policy is used, it will:

• reduce economic growth
• increase unemployment
• reduce price levels
• improve the current account of the balance of payments

Question 9

what does expansionary fiscal policy involve?

Answer 9

expansionary fiscal policy involves increasing aggregate demand

Question 10

how does expansionary fiscal policy increase aggregate demand?

Answer 10

expansionary fiscal policy increases aggregate demand by increasing government spending or decreasing taxes

Question 11

what is expansionary fiscal policy also known as?

Answer 11

expansionary fiscal policy is also known as reflationary fiscal policy

Question 12

when is an expansionary fiscal policy likely to be used?

Answer 12

an expansionary fiscal policy is likely to be used during a recession or when there is a negative output gap

Question 13

what happens when an expansionary fiscal policy is used?

Answer 13

when an expansionary fiscal policy is used, it will:

• increase economic growth
• decrease unemployment
• increase price levels
• worsen the current account of the balance of payments

Question 14

what is likely to happen to the budget when a contractionary fiscal policy is used?

Answer 14

when a contractionary fiscal policy is used, the government is likely to have a budget surplus

Question 15

what is likely to happen to the budget when an expansionary fiscal policy is used?

Answer 15

when an expansionary fiscal policy is used, the government is likely to have a budget deficit

Question 16

what are the two important features of fiscal policy?

Answer 16

the two important features of fiscal policy are automatic stabilisers and discretionary policy