Lecture 09 # Role of Government Flashcards
One-Shot Revision
- What are the key macroeconomic policies in Pakistan?
- Fiscal Policy
- Monetary Policy
- Exchange Rate Policy
- Trade Policy
- Industrial Policy
- Social Policies
- Regulatory Policies.
- What is public finance?
Public finance is the management of government revenue, expenditure, and debt, affecting the economy.
- What are the objectives of macroeconomic policy?
- Full employment
- Price stability
- Economic growth
- Balance of payments stability
- Stable exchange rates.
- What are the main categories of government receipts?
- Tax revenue
- Non-tax revenue
- Grants and aids.
- Define committed government expenditure.
Mandatory spending required by law, such as social security payments.
- What is a cyclic deficit?
Budget deficits influenced by economic cycles, often worsening during downturns.
- Define discretionary government expenditure.
Non-mandatory spending, determined annually by policymakers, such as funding for education.
- What is a structural deficit?
A budget deficit that persists even during economic growth, due to policy decisions.
- What are the functions of taxation?
- Revenue generation
- Wealth redistribution
- Economic stabilization
- Behavior modification
- Resource allocation
- Public policy implementation.
- What are the qualities of a good tax system?
Equity, certainty, convenience, economic efficiency, adequacy.
- What is a proportional tax?
A tax where the rate is constant, regardless of income level.
- What is a progressive tax?
A tax where the rate increases as income rises.
- What is a regressive tax?
A tax where the rate decreases as income rises, such as sales tax.
- What are direct taxes?
Taxes directly imposed on individuals or businesses, like income and corporate taxes.
- What are indirect taxes?
Taxes on goods and services, where the burden can be shifted to others, like VAT or sales tax.
- What is unemployment?
The situation where individuals who are able and willing to work at the current wage rate cannot find employment.
- What are the types of unemployment?
- Frictional
- Structural
- Cyclical
- Seasonal
- Voluntary
- Classical unemployment.
- What is inflation?
A sustained increase in the general price level of goods and services, reducing purchasing power.
- What are the consequences of unemployment?
- Loss of income
- Reduced demand for goods and services 3. Increased social welfare costs
- Slower economic growth.
- What is cost-push inflation?
Inflation resulting from increased production costs that cause producers to raise prices.
- What is demand-pull inflation?
Inflation caused by an excess of demand over supply.
- What is stagflation?
An economic condition of stagnant growth, high unemployment, and high inflation, often due to supply shocks like rising oil prices.
- What is hyperinflation?
Extremely high inflation, often exceeding 50% per month, leading to a drastic loss in currency value.
- What are the causes of inflation?
- Increased demand
- Supply shortages
- Rising production costs
- Excessive money supply
- Exchange rate fluctuations.
- How is inflation measured?
Through the Consumer Price Index (CPI), Producer Price Index (PPI), and GDP Deflator.
- What is the policy response to inflation?
Central banks may raise interest rates, governments may reduce spending or increase taxes, and supply-side policies may focus on productivity improvements.
- What is the Quantity Theory of Money?
It states that the price level is directly proportional to the money supply, expressed as MV = PQ.
- What does the Philips Curve illustrate in the short run?
A trade-off between inflation and unemployment.
- What happens to the Philips Curve in the long run?
The trade-off diminishes as unemployment returns to its natural rate and inflation is influenced by other factors.
- What is contractionary fiscal policy?
Reducing government spending or increasing taxes to control inflation.
- What is fiscal policy?
Government use of taxation and spending to influence the economy.
- What is expansionary fiscal policy?
Increasing government spending or cutting taxes to boost economic activity.
- What are the objectives of fiscal policy?
- Economic growth
- Price stability
- Full employment
- Income redistribution.
- What is the effect of fiscal policy on aggregate demand?
Expansionary fiscal policy increases it, while contractionary decreases it.
- How does fiscal policy affect unemployment?
Expansionary policy lowers it, contractionary may raise it.
- What is the crowding-out effect?
When government borrowing leads to higher interest rates, reducing private investment.
- What is monetary policy?
Central bank actions to control the money supply, interest rates, and credit conditions.
- What are the objectives of monetary policy?
- Price stability
- Full employment
- Economic growth
- Currency stability.
- What is the effect of rising interest rates?
- Increased borrowing costs
- Slower consumer spending
- Stronger domestic currency.
- What is supply-side policy?
Measures aimed at increasing productivity and long-term economic growth.
- What are key aspects of supply-side policies?
- Tax reforms
- Deregulation
- Labor market flexibility
- Infrastructure investment
- Innovation promotion.
- What are the objectives of supply-side policies?
- Promote economic growth
- Reduce unemployment
- Control inflation by improving efficiency.
