Macroeconomics Flashcards
What is fiscal Policy
Gov. manipulation of spending and taxation and the budget balance in order to stabilise the economy
E.g subsidise training
What is expansionary fiscal policy
Aims to increase AD, Increase GS or reduce taxes - worsening of the budget deficit
What is contractionary fiscal policy
Aims to decrease AD, Cut spending or increase taxes - improvement of budge deficit
Limitations of fiscal policy
-Imperfect info about economy
-Time lag with employing fiscal policy
-Gov borrow from private sector through taxes, lead to cowding out
-Level of interest rates may affect AD anf fiscal policy’s effects
-Debt
What is current Government expenditure
Spending which recurs, last for a short period of time e.g health service
What is capital government expenditure
Spent on assets, used multiple times e.g roads/school
What are transfer payments
Welfare payments from the Government to provide minimum standard of living + redistribute income
What are supply side policies
actions taken by the Gov increase productive potential (quality and quantity) of the economy (LRAS). e.g youth apprentice shemes.
Can directly target labour market compared to monetary and fiscal.
What are supply side improvements
Increase in productive capacity resulting from businesses acting out of their own self interest
What is the crowding out effect
Gov increases taxes to receive more income (as deficit too large) - fewer funds left in the private sector
What is a budget deficit
Expenditure exceeds taxation revenue
What is a budget surplus
Taxation revenue/receipts exceeds gov spending
What are direct taxes
Taxes imposed on income, paid directly to the Gov
What are indirect taxes
Imposed on expenditure on goods and services causing increased COP.
e.g Ad valorem (e.g VAT 20% of unit price) +
What are austerity measures
Measures taken aimed at reducing the size of the national debt
Cyclical deficit
Temporary deficit related to business cycle. When Gov increases spending to stimulate ecconomy/ boost AD.
Structural deficit
Imbalance in revenue and expenditure of the Gov, so exists at every point in the business cycle, unaffected by economic cycle.- long term
What is the role of the Office for Budget Responsibility
Provides analysis of the UK’s finances
produce 5 year forecasts for the economy including impact of tax and GS + budget
What is the current account
Exports,imports , net income, net current transfers
International economic transactions
What are market-based policies
Focus on the power of the free market, role of gov is reduced e.g. Privatisation (protect domestic industries from foreign competition), deregulation, reduce welfare benefits
What are interventionist policies
Involve Gov intervention in markets to achieve a goal e.g Gov spending on education, housing supply decrease geo immob
What is malignant deflation
Deflation due to a decrease in AD
What is Benign deflation
Deflation due to an increase in (SR)AS
What is deregulation
Process of removing governmtn regulation from a market. Type of free-market policy
What is the budget balance
Difference between Gov revenues and spending
What is dumping
firm charges export price below domestic price and below costs of production to gain market share and drive out competition
