Fiscal Policy - Achieving government objectives + Budget surplus vs deficit

Question 1

How can fiscal policy help achieve economic growth

Answer 1

decrease in taxes (expansionary)= more disposable income
raises consumer spending,total demand and total supply

Greater supply = GREATER GDP = ECONOMIC GROWTH

Question 2

How can fiscal policy maintain full employment

Answer 2

reduction in taxes (expansionary) = more disposable income so more money spent.
increased consumer spending leads to higher output

THEREFORE increased demand for labour and more jobs

Also acts as incentive for workers to make more money

Question 3

How can fiscal policy help control inflation

Answer 3

taxes can be raised (contractionary) to reduce individuals disposable income therefore reduce total demand
demand pull inflation will fall

Question 4

How can fiscal policy solve unequal Balance of Payments

Answer 4

in budget deficit = increase tax (contractionary) to reduce consumer disposable income to reduce number of imports
Government could reduce spending

Question 5

How can fiscal policy help inequality

Answer 5

Reduction of taxes (expansionary) means more people have more money

Question 6

How is budget different to B.O.P

Answer 6

B.O.P is only IMPORTS AND EXPORTS
government budget is whole gov income and expenditures

Question 7

What are the likely results of a budget surplus (4) (contractionary policy)

Answer 7

tight contractionary fiscal policy = lower economic growth

individuals struggle paying off debt

less money needs to be borrowed (+)

Public infrastructure could be poor (less spending)

Question 8

What are the consequences for a budget deficit (4) (expansionary policy)

Answer 8

increase national debt

increase total demand (less taxes)

increase quality and quantity of infrastructure + public services

inflation if national debt is very bad