Government Finances And Evaluating Fiscal Policy

Question 1

What is a government budget?

Answer 1

A plan detailing the income and expenditure a government anticipates over a given period of time together with details of any borrowing requirements.

Question 2

What is annual deficit?

Answer 2

The amount by which government spending exceeds the revenue received via taxes - expressed as a % of GDP.

Question 3

What is National Debt?

Answer 3

The amount of money borrowed by the government by issuing Gilt Edged Securities - expressed as a % of GDP

Question 4

Annual deficit/surplus (% of GDP) calculation

Answer 4

(Revenue - expenditure / gdp) x100

Question 5

National debt (% of GDP) formula

Answer 5

(Total accumulated debt / gdp) x100

Question 6

In what aspects can the economic become unbalanced?

Answer 6

• GDP components
• Trade balance
• Fiscal finances
• Size of public sector
• Income distribution
• Regional inequality

Question 7

What is the GDP expenditure formula?

Answer 7

GDP = C + I + G + (X - M)

Question 8

Austerity measures definition

Answer 8

Economic policy decisions that aim to restructure the economy so that it’s possible to achieve economic growth as well as reducing budget deficits so that national debts can be reduced.

Question 9

What is the aim of austerity measures?

Answer 9

Aim to reduce the state sector and encourage the private sector to expand so that the economy keeps growing.

Question 10

Effects of contractionary fiscal policy with austerity measures

Answer 10

• reduce spending
• avoid disincentives
• manage credit rating

Question 11

Expansionary monetary policy for austerity measures?

Answer 11

• Support banks
• Low bank rate
• Print ‘New’ Money

Question 12

Expansionary supply side policy for austerity measures

Answer 12

• Support employers
• Support exporters
• Incentivise work

Question 13

What is a keynesians thought relating to the implementation of austerity measures?

Answer 13

Keynesians believe that austerity measures inhibit an economy from recovering and deepen the magnitude and duration of a recession.

Question 14

What is a classical economists thought relating to the implementation of austerity measures?

Answer 14

Classical economists believe that austerity measures carve out a sustainable recovery path for an economy.

Question 15

What is crowding out?

Answer 15

Crowding out is when the effect of expansionary fiscal policy is offset because this reduces resources and finance available to the private sector.

Question 16

What is the laffer curve?

Answer 16

The laffer curve is a theoretical analysis of tax revenues and marginal rates of tax which suggests that raising tax rates does not always generate more tax revenue.