Role Of State In Macroeconomy - PS Finaces Flashcards
What is discretionary fiscal policy (3+)
Implemented through one-off policy changes
Involves deliberate changes in gov expenditure and taxes
Intention of influencing aggregate demand
What are automatic stabilisers (3)
Policies which offset fluctuations in the economy
These include transfer payments and taxes
Triggered without government intervention
What is fiscal debt
Expenditure exceeds tax receipts in a financial year
What is national debt
Amount of money the government has borrowed at one time through issuing securities by the Treasury
What is a cyclical deficit (3+)
A temporary deficit
Related to the business cycle
A deficit might occur during recessions when gov increase spending to stimulate the economy
What is structural deficit (2)
A deficit which is due to an imbalance in the revenue and expenditure of the gov
Exists at every point in the business cycle
Factors influence g size of fiscal deficit (3)
Business cycle
Interest payments
Privatisation
Influencing business cycle - business cycle (3+)
Gov are likely to spend more during recessions = stimulate the economy
Spending might be increased on welfare payments = more people will be unemployed and on low incomes
Tax revenues from income tax and VAT will be lower = people will be earning and spending less
Factors influencing fiscal deficit - Intrest payments (3)
If interest rates increase on government debt = amount the government pays in interest payments increases = deficit might increase
Factors influencing fiscal deficit - privatisation (2+)
Government sells the industry to the private sector
Provides gov with a one-off payment = improve the budget deficit
Deficit and national debt relation (2+)
The national debt is the accumulation of the government deficit over time = total amount the gov owes
If the gov is continuously running a deficit the size of the debt increases
Reducing size of deficit does what to debt
If the gov reduces the size of their deficit the rate of increase of the total debt is slower
BUT the debt is still increasing
When does national debt reduce actually + uks current position (2+)
ONLY when gov runs a budget surplus that national debt decreases
The UK government is trying to reduce the size of the deficit which is approx. £2.3tr
Significance of size of fiscal deficit (2)
Inflationary if influences AD
More gov spending = crowding out
Significance of size of national debt (3++)
Confidence lost in gov ability to repay debt = they then increase IR to encourage investors to buy bonds = finance debt
Higher taxes
Increase cost of borrowing since the gov is borrowing they are increasing demand for credit in economy
