Structural v Cyclical Deficit

Question 1

Cyclical deficit

Answer 1

When government spending fluctuates around the trade cycle. In recession rev. is low and spending is higher etc.

Question 2

Structural Deficit

Answer 2

A deficit that occurs when cyclical deficit is zero (peak of the boom). Is long term and not related tot he state of the economy

Question 3

Impacts of structural deficits

Answer 3

Having a structural deficit will mean it’s likely that debt will grow over time as the gov. must continuously borrow to spend.

Question 4

Impacts of high national debt 4

Answer 4

High borrowing can cause crowding out (increasing interest rates thus lowering AD)

High opportunity cost on servicing national debt (interest payments). UK spends £70bn a year to service national debt

Intergeneraional inequality as debt benefits citizens today at the expense of those in the future. However, if the deficit is due to capital expenditure then future generations will benefit from this spending so higher tax rates may be justified

High fiscal deficits can cause inflation due to increases in AD

Question 5

National debt v fiscal deficit

Answer 5

National debt = sum of all government debt built up over many years

Fiscal deficit = when gov. spends more than it receives ina year