Fiscal Policy

Question 1

fiscal policy

Answer 1

any action by the government which affects the size, structure and timing of government revenue and expenditure.

Question 2

who is responsible for the implementation of government fiscal policy

Answer 2

Minister of Finance, Pascal Donoghue

Question 3

The budget

Answer 3

a financial statement presented to the dail each year in october by the minister for finance
the means by which the governments fiscal policy is persued

Question 4

the budgetary process

Answer 4

Each dept. prepares its spending plan for the year, submits to dept. of finance
Dept. of finance examines carefully, may be discussions and alterations
Once these are agreed, published in ‘book of estimates’ in september
Early october a white paper entitled ‘estimates of receipts and expenditure’ is published. estimates of revenue are as if tax rates have not changed. will identify whether there will be sufficient revenue to meet exp.
if shortfall - rates of tax will be increased in the budget or additional borrowing will be required
About a week later the budget is presented to dail for debate. any changes in exp. or taxation are announced

Question 5

two legal acts passed during the budget process

Answer 5

the finance act

the appropriation act

Question 6

current expenditure

Answer 6

gov spending on items which are used up during the year eg wages and salaries of gov employees, social welfare payments

Question 7

current revenue

Answer 7

the money received by the gov. in direct and indirect taxation, and other income throughout the year

Question 8

sources of current revenue

Answer 8

direct tax: PAYE, Corp. Tax
indirect tax: VAT, Customs Duty

Profits of state companies
fees on services eg obtain a passport

Question 9

types of gov. expenditure

Answer 9

social welfare
health
education
covid
brexit

Question 10

sources of capital revenue

Answer 10

loan repayments from local authorities/semi state bodies
sale of state property
borrowing through national loans: borrowing from financial markets by issuing bonds
grants/loans from foreign international institutions and EU, for the development of society

Question 11

capital budget

Answer 11

contains expenditure by the gov on items which will increase the productive capacity of the country for future years

Question 12

capital expenditure

Answer 12

investment by the gov in roads, schools, hospitals

Question 13

sources of capital expenditure

Answer 13

borrowing by the gov. by issuing bonds on the financial markets and forms part of the national debt

Question 14

EU restriction on National Debt

Answer 14

3% of GDP

Question 15

why the distinction between current and capital expenditure

Answer 15

borrowing for capital is justified because: such items have a lifespan of many years - will generate future income for the country

not justified for current: will be paying back loans for goods/services that have already been used up

Question 16

exchequer balance

Answer 16

difference between total current and capital expenditure and total gov. income

Question 17

inflationary budget

Answer 17

government spending is increasing or taxation is decreasing

Question 18

deflationary budget

Answer 18

government spending is decreasing or taxation is increasing

Question 19

neutral budget

Answer 19

neither inflationary nor deflationary

eg budget 2015/2016

Question 20

measures gov. can take to reduce a current budget deficit (increase revenue)

Answer 20

increase indirect taxes- (consequences)
rise in hidden economy
increase in inflation as good rises in price
fall in aggregate demand as price is higher
greater ability to fund public services

increase direct taxes:
rise in hidden economy
fall in employment- decrease in incentive to work
fall in AD as spending power falls
greater ability to fund public services

Question 21

measures gov. can take to reduce a current budget deficit (decrease expenditure)

Answer 21

reduce numbers employed in public sector (redundancy packages)

• short term shock in paying redundancy payments
• possibility of increasing long term unemployment if not enough work in private sector
• fall in AD, spending power falls
• deterioration of public sectors

stabilise or cut wages in public sector

• possibility of industrial dispute
• skilled workers may leave to private sector/emigrate
• discourages effort/motivation

scale back on public services

• those on low incomes suffer fall in s.o.l.
• costs increase in long run to reintroduce these
• industrial disputes and protests by affected citizens

Question 22

effects of a deficit on the current account

Answer 22

Negative Implications Of A Current Deficit:
increased taxation
cost savings required
increase in national debt
increased difficulty in managing finances
increased inflationary pressure

Positive Implications of Current Deficit:
economic growth
less pressure groups lobbying gov

Question 23

revenue buoyancy

Answer 23

actual taxation revenue collected during the year that is greater than what had been planned for
if this happens- deflationary effect on the economy, whic is an example of fiscal drag

Question 24

general gov. balance

Answer 24

total income minus expenditure of all arms of gov. local and national

Question 25

national debt

Answer 25

total outstanding amount of money, borrowed by the central bank and not repaid to date, less liquid assets available

Question 26

general government debt

Answer 26

includes the national debt, as well as local gov. debt and some other minor liabilities of the gov

Question 27

dead weight debt

Answer 27

borrowed money that is not self financing

Question 28

rolled over debt

Answer 28

substitution of an old debt for a new one

Question 29

public sector borrowing requirement

Answer 29

government borrowing for:
current budget deficit
money borrowed for capital purposes
money borrowed for state sponsored bodies and local authorities

Question 30

purpose of fiscal policy

Answer 30

stimulate economic growth in a period of recession
keep inflation at or below a targeted level
stabilise economic growth, thereby avoiding a boom and bust economical cycle

Question 31

inflationary/expansionary fiscal policy

Answer 31

increasing AD by either reducing taxes and/or increasing expenditure
Thus the AD curve shifts rightward, increasing real output, reducing the output gap and allowing the price level to rise
used when there is not enough AD ie during a recession

Question 32

deflationary/contractionary fiscal policy

Answer 32

reducing AD by either increasing taxes and/or cutting expenditure
thus the AD curve shifts leftward reducing real output, invoking a downward multiplier effect, widening the output gap and allowing the price level to drop
used when AD is too high ie during a boom

Question 33

neutral fiscal policy

Answer 33

neither trying to boost/reduce AD

Question 34

limitations of fiscal policy in stabilising trade cycles

Answer 34

time barriers
crowding out
gov. spending is insufficient
higher borrowing costs
influence of world events
European monetary policy

Question 35

measuring national debt

Answer 35

debt/GDP ratio

Question 36

consequences of national debt

Answer 36

must be paid back with interest
increased burden on taxpayers of the future
greater the non-domestic debt the greater the burden on gov.
threat of default
threat to the stability of the euro currency
austerity budgets 2007-2014

Question 37

times in which national debt is not a burden

Answer 37

self liquidating projects

infrastructure (productive or social)

Question 38

The National Treasury Management Agency functions

Answer 38

manages the assets and liabilities of gov. by:
issuing bonds (borrowing) on behalf of gov.
manages national debt

manages the national pension reserve fund
provides staff and business support services
manages certain claims against the state for personal injury or property damage
manages the national development finance agency

Question 39

self liquidating projects

Answer 39

if gov uses borrowed money on projects which will increase future productive capacity of country
such projects will eventually create sufficient income to repay the borrowed money plus interest

Question 40

productive infrastrasture

Answer 40

state investment on those things that will directly increase output
eg motorways, port tunnel
ie self liquidating

Question 41

social infrastructure

Answer 41

provision of services
no direct benefit to state as no additional tax accrues
however, there is indirect benefits of better educated workforce and healthier and more productive workers
ie healthcare, education