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Fiscal Policy
| Question | Answer |
|---|---|
| What is the governments budget? | The annual statement of projected outlays and receipts, together with the laws and regulations that supports those outlays and receipts |
| What are the three major purposes of the Gov budget? | 1. To state the scale and allocation of the Govs outlays and its plans to finance those activities 2. To stabilise the economy 3. To encourage the economy's long term growth and balance regional development |
| What are the three main items included in the budget? | 1. Receipts 2. Outlays 3. Budget balance |
| Which 4 sources to receipts come from? | 1. Taxes on income and wealth 2. Taxes on expenditure 3. National Insurance contributions 4. Other receipts and royalties |
| What are the three broad categories of outlays | 1. Expenditure on goods and services 2. Transfer payments 3. Debt interest |
| What are the three types of budget? | 1. Balanced budget Gov spending = Tax receipts 2. Budget surplus - Gov spending is < Tax receipts 3. Budget deficit - Gov spending is > Tax receipts |
| What is government debt? | The total amount of borrowing by the government. = the sum of past deficits - the sum of past surpluses + payments to buy assets - receipts of sold assets |
| What are the five ways to cope with fiscal imbalances? | 1. Raise income taxes 2. Raise NI contributions 3. Cut gov discretionary spending 4. Cute unemployment and other welfare benefits 5. Raise the state pension age |
| What are the two options for fiscal policy? | 1. Expansionary fiscal policy 2. Contractionary fiscal policy |
| What does expansionary fiscal policy do? | Aimed to reduce unemployment by increasing Gov spending and/or reducing taxes (Ad curve shifts LEFT) |
| What does contractionary fiscal policy do? | Aimed to reduce inflation by decreasing gov spending and/or increasing taxes (AD curve shifts RIGHT) |
| What is the multiplier effect? | The idea that if the government spends e.g. £1 billion, national income will not only increase by £1 billion, but will generate further spending, which will in turn generate more spending etc. |
| What are the key problems of fiscal policy? | May crowd out private investment The size of the multiplier may not be known Policy take times to work Does the policy have the desired effect? |
| The problem of magnitude/size of multiplier | before changing gov expenditure or taxation the gov will need to calculate the affect of any changes would have on national income, employment, and inflation |
| Why may gov predictions over the effect changes to gov expenditure may be, be unreliable? | 1. Predicting the effects of changes in gov expenditure 2. Predicting the effects of changes to taxes 3. Predicting the multiplier effects on national income 4. Random shocks |
| What are the problems of timing for the types of fiscal policy? | can involve significant time lags, that if long enough could even destabilise the economy |
| Problems of timing for expansionary policy? | used to cure a recession, due to time lag may not come into effect until the economy had already recovered and then experiences a boom in the economy |
| Problems of timing for contractionary policy? | used to resolve inflation. may not take effect until economy has reached its peak and causes the economy to plunge into a recession. |
Created by:
Joph
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