Th4.5: Factors Influencing the Size of Fiscal Deficits

Question 1

What are the first 4 factors influencing the size of fiscal deficits?

Answer 1

trade cycle
unforeseen events
interest rates
privatisation

Question 2

What are the final 3 factors influencing the size of fiscal deficits?

Answer 2

government aims
high revenues from oil
number of dependents

Question 3

Trade cycle

Answer 3

during a downturn, government tax revenue decreases whilst government spending increases and so the deficit increases

Question 4

Unforeseen events

Answer 4

unforeseen events such as natural disasters or recessions lead to huge increases in spending which increase the deficit

Question 5

Interest rates

Answer 5

if interest rates on government debt increase, the amount the government pays in interest repayments increases, likely increasing the deficit. the impact of this will depend on how significant interest repayments are in the size of the deficit

Question 6

Privatisation

Answer 6

events like privatisation provide one-off payments to the government which will decrease the deficit in the short term - will depend on the value of the company sold

Question 7

Government aims

Answer 7

government aims are important as this will influence their fiscal policy - e.g the austerity aim has helped to decrease the size of the deficit but attempting to increase AD would increase spending

Question 8

High revenues from oil

Answer 8

many countries with high revenues from oil run a budget surplus and so government revenue is important in the size of the deficit

Question 9

Number of Dependents

Answer 9

factors such as the number of dependents in a country affect both spending and tax revenues so influence the deficit