Govt. Macroeconomic Intervntion Flashcards
Fiscal policy
The use of taxation and govt. spending to influence AD
Budget
An annual statement in which the govt. outlines plans for its spending and tax revenue
Automatic stabilisers
Changes in govt. spending and taxation that occur to reduce fluctuations in AD without any alteration in govt. policy
Cyclical budget deficit
A budget deficit caused by a decline in economic activity
Structural budget deficit
A budget deficit caused by an imbalance between govt. spending and taxation
Types of taxtation
Progressive- Taxes are higher for high incomes and vice versa for low incomes
Proportional- The same percent of tax for all incomes
Regressive- Taxes are higher for lower incomes and vice versa
Types of govt. spending
-Transfer payments
(Non exhaustive spending)
Ex-Unemployment benefits and state pensions
-Current spending
(Exhaustive spending)
-Capital spending
(Exhaustive spending)
Expansionary and contractionary fiscal policy
-Increase in govt. spending and lower taxation
-Reduced in govt. spending and higher taxation
Discretionary fiscal policy
Deliberate changes in govt. spending and taxation
Monetary policy
The use of interest rate, money supply, credit regulation and exchange rate to influence AD
Expansionary and contractionary monetary policy
-A cut in interest rate, an increase in money supply and reduction in bank lending regulation
=A rise in interest rates, an reduction in money supply and increase in bank lending regulations
Supply side policies
Govt. policy tools designed to increase AD
Supply side policy tools
-Education and training
-Promoting infrastructure
-Increasing technological improvement
-Cut in corporate and income tax
-Privatisation and deregulation
-Trade union reform increasing worker mobility and flexibilty
