Lesson 16 - Government Expenditure Flashcards
What is fiscal policy?
The means by which a govt adjusts its spending levels + tax rates to monitor + influence a nations economy
Decisions regarding which factors relate to fiscal policy?
Govt spending
Govt borrowing
Taxation
What are the top 5 areas of govt spending?
Total social protection
Total health
Total education
General public services
Accounting adjustments
What are the top 5 areas of taxation?
Income tax
VAT
National Insurance Contributions
Other (Taxes)
Exercise Duties
What are the 6 key roles of fiscal policy?
Financing key areas of govt spending
Altering income + wealth distribution
Providing welfare state safety net for families
Managing the macroeconomic cycle
Improving a nation’s competitiveness
Tackle market failure through intervention
What is fiscal policy used to do?
Change pattern of spending on Goods + Services
Impact level of AD, growth + jobs
What name is given to the act of using fiscal policy to manipulate AD?
Demand Management
What are the 2 types of fiscal policy?
Expansionary
Deflationary
When does expansionary fiscal policy occur?
Govt spending high
Taxation low
Leads to budget deficit (Govt borrowing rises)
When does deflationary fiscal policy occur?
Taxation rises
Govt Spending decreases
Leads to budget surplus
What is crowding out?
Govt pushes out private sector activity
Resources reallocated from private to public sector
What is the fiscal multiplier?
Broader increases in spending due to initial govt spending
What are automatic stabilisers?
Mechanisms which reduce the impact of changes in the economy on national income
Describe the automatic stabilisers that occur when the economy enters a boom
Taxes increase (Spending power + wages - VAT)
Govt spending decreases
AD grows slowly (Benefits economy as inflation is reduced)
Describe the automatic stabilisers that occur when the economy enters recession
Taxes decrease
Govt spending increases
AD falls slowly (Benefits economy as unemployment is reduced)
