Th2.6: Fiscal Deficits

Question 1

What may the government decide to do in order to reduce fiscal deficits?

Answer 1

reduce government spending and increase taxes

Question 2

What will this decision do?

Answer 2

reduce AD and decrease short term economic growth and higher employment

Question 3

The higher the fall in output as a result of these measures…

Answer 3

the higher the fall in tax revenues will be and so therefore the more ineffective the policy

Question 4

Moreover, why is it likely to affect income equality?

Answer 4

the poor are the ones who use the government services most and so will be worst affected