Government Spending And Net Trade

Question 1

What is fiscal policy ?

Answer 1

Decisions about government spending, taxes and government borrowing.

Question 2

Examples of sectors government spending is involved in ?

Answer 2

*education
*healthcare
*public goods (defence, the judiciary).

Question 3

Who is expected to provide/fund goods in a free market ?

Answer 3

The private sector.

Question 4

Who is expected to provide/fund goods in a mixed economy ?

Answer 4

The state expected to provide most of these goods.

Question 5

How is most of government spending allocated ?
Why ?

Answer 5

*Fixed from year to year
*Schools must be funded, warships must be fuelled, pensions must be paid etc.

Question 6

Government spending effects on total spending, unemployment and inflation

Answer 6

Higher government spending = increased total spending = affects unemployment + inflation.

Question 7

Example of the effects of government spending on total spending, unemployment and demand

Answer 7

Recession = government spending increases = decreased unemployment = increased demand.

Question 8

Examples of major UK exports and imports ?

Answer 8

• Imports (electronic equipment, motor vehicles, plastic/plastic products)
• Exports (crude oil, refined oil, beverages and tobacco).

Question 9

Definition of budget deficit

Answer 9

Government spending heir than government receipts (e.g. taxation).

Question 10

Definition of budget surplus

Answer 10

Government spending less than government receipts.

Question 11

Definition of net exports/the net trade balance

Answer 11

Exports minus imports.

Question 12

What are the factors that affect the demand for exports and imports ?

Answer 12

*Price
*Real income in the domestic economy
* the exchange rate
*State of the world economy
*Degree of protectionism.

Question 13

How does price affect the demand for exports and imports ?

Answer 13

• When the price increases = quantity demanded decreases
• The price is dependant on supply factors (e.g. costs).

Question 14

How does real income in the domestic economy affect demand for exports and imports ?

Answer 14

• When an economy is doing well = real incomes of households increase = increased total spending
• some of this spending will be on imported goods.

Question 15

How does the exchange rate affect the demand for exports and imports ?

Answer 15

• If the exchange rate increases = costs more for foreigners to buy pounds with their domestic currency = demand for exports decrease.

Question 16

How does the state of the world economy affect the demand for exports and imports ?

Answer 16

If the UK’s trading partners are doing well economically = UK exports likely to rise.

Question 17

How does the degree of protectionism affect the demand for exports and imports ?

Answer 17

Increased protectionism internationally = decreased UK exports (UK benefits being part of the EU as they face less trade barriers).