Lesson 16- Government Expenditure

Question 1

Define fiscal policy

Answer 1

Fiscal policy is the use of government spending and taxation to influence the economy

Question 2

List the top 5 areas of government spending

Answer 2

.Social Protection
.Health
.Education
.General Public Services
.Accounting Advertisements

Question 3

List the top 5 areas of taxation

Answer 3

Income Tax
VAT
NI Contributions
Other (Taxations)
Excise duties

Question 4

What are the roles of fiscal policy?

Answer 4

Financing key areas of government spending
Altering the distribution of income and wealth ( eg taxing the rich heavily whilst giving benefits to the poor)
Providing a welfare state safety net for families
Managing the macroeconomic cycle
Improving the country’s competitiveness ( can be done by lowering taxes so businesses have more money to invest increasing output)
Tackle market failures through intervention

Question 5

What does fiscal policy do?

Answer 5

Fiscal policy is used to change the pattern of spending on goods and services ( eg increase taxes so people have less money to spend or increase benefits so consumer spending increases)
It impacts the level of growth and aggregate demand
Using fiscal policy to manipulate AD is known as demand management
Annually the Chancellor will set out a budget which outlines government expenditure and taxation policies

Question 6

Using fiscal policy to manipulate aggregate demand is known as what?

Answer 6

Demand management

Question 7

What is an expansionary fiscal policy?

Answer 7

An expansionary fiscal policy happens when the government increases government spending and decreases taxation to boost the economy. This will lead to a budget deficit as the government is spending more than it is taking

Question 8

What is a deflationary fiscal policy?

Answer 8

A deflationary fiscal policy happens when the government increases the rate of taxation and reduces government spending. This leads to a budget surplus as the government takes more than it is spending