Fiscal Policy (Macroeconomic)

Question 1

Why is fiscal policy implemented?

Answer 1

Adjust for cyclical changes in the economy by changing aggregate demand

Question 2

Fiscal Policy changes what?

Answer 2

Aggregate demand (C + I + G + X-M)

Question 3

What is a Tax Mix?

Answer 3

The balance between direct/indirect tax

Question 4

What is the Tax Base?

Answer 4

The value of assets, income and economic activity that can be taxed

Question 5

What is the Tax Burden?

Answer 5

The rates of direct/indirect tax applied.

Question 6

What are the different types of Government Revenues.

Answer 6

Direct tax, indirect tax, and non-tax revenue

Question 7

What is a direct tax?

Answer 7

Is a tax paid directly by an individual or organization e.g. income tax, medicare levy, and corporation tax

Question 8

What is an indirect tax?

Answer 8

Is a tax passed off by the government on goods and services. e.g. GST, and customs

Question 9

What is an example of a non-tax revenue?

Answer 9

Dividens of Government businesses, & the sale of government assets.

Question 10

What are the three taxing systems?

Answer 10

Proportional, progressive, and regressive.

Question 11

What is bracket creep?

Answer 11

Through inflation, people earn more whilst mnaintaing the same real wage, but pay more in taxes.

Question 12

What is the laffer curve?

Answer 12

Tax rate (y), tax revenue (x). Buldhes at around 60%.

Question 13

What are the different types of Government Expenditure.

Answer 13

Current spending, Capital spending, and Transfer Payments.

Question 14

What does Current spending consist of?

Answer 14

They are for the short term and include expenditure on wages and raw materials.

Question 15

What does Capital Spending consist of?

Answer 15

Also called social capital, they include spending on physical assets like roads, bridges, hospital buildings, and equipment.

Question 16

What is an automatic stabiliser?

Answer 16

Non-discretionary fiscal policy that automatically adjusts for cyclical changes in the economy.

Question 17

What does a budget deficit mean?

Answer 17

Receipts < expenses

Question 18

What does a budget surplus mean?

Answer 18

Receipts > expenses

Question 19

What are the advantages of a budget surplus?

Answer 19

The extra cash can be used to: (1) pay off debts or (2) be reinvested in other projects. (3) It can even be returned to the public in the form of price or tax cuts.

Question 20

What are the disadvantages of a budget surplus?

Answer 20

Those savings mean that the wider economy will not benefit from the multiplier effect of government spending.

Question 21

What is the money multiplier effect

Answer 21

The multiplier effect refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of capital.

Question 22

What is the formula for the money multiplier effect

Answer 22

(1/MPC) e.g. 1/0.5 -> 10/5 -> 2

Question 23

What are the effects of a budget deficit?

Answer 23

Spending will likely be cut. Taxes might increase.

Question 24

What are the (5) issues with fiscal policy -> time lag?

Answer 24

(1) recognition lag, (2) Decision making lag, (3) Implementatino lag, (4) Autonomous expenditure, (5) Induced expenditure