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Flashcards in Fiscal policy Deck (22)
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1
Q

What is fiscal policy?

A

Changes in taxation and government spending to meet the macroeconomic objectives

2
Q

What is the key source of government revenue?

A

Taxation

3
Q

What is current spending?

A

Government spending on the day-to-day running of the public sector

4
Q

What is capital spending?

A

Government spending to improve the productive capacity

5
Q

What are transfer payments?

A

Government payments to individuals for which no service is given in return

6
Q

What is a balanced budget?

A

Government receipts = government spending

7
Q

What is a budget deficit

A

Government spending > government receipts

8
Q

What is a budget surplus?

A

Government receipts > government spending

9
Q

What is demand side fiscal policy?

A

Changes in the level or structure of government spending and taxation aimed at influencing the components of AD

10
Q

What is discretionary fiscal policy?

A

The deliberate manipulation of government spending and taxation to influence the economy

11
Q

What is expansionary fiscal policy?

A

Increasing levels of government spending relative to tax

12
Q

What is contractionary fiscal policy?

A

Increasing levels of tax revenue relative to government spending

13
Q

If the government increases expenditure on roads, what will happen? Why?

A

Multiplier effect
This will generate income for households
Workers will spend their money in the economy
Providing additional income stream

14
Q

What does the size or value of the multiplier effect depend on?

A

The size of the injections or withdrawals from the circular flow of income

15
Q

What is supply-side fiscal policy?

A

Changes in the level of government spending and taxation designed to improve the supply-side of the economy

16
Q

What are the supply-side effects of fiscal policy? (5) (LCERI)

A
Labour market incentives 
Capital spending 
Entrepreneurship 
Research and development 
Improvements in human capital
17
Q

How does fiscal policy affect labour market incentives?

A

Income tax cut = workers are able to take home more pay per hour = incentive to work harder

18
Q

How does fiscal policy affect capital spending?

A

Increase in government spending = more investment

19
Q

How does fiscal policy affect entrepreneurship?

A

Government spending might be used to fund an expansion in the rate of new business start ups

20
Q

How does fiscal policy affect research and development?

A

Government spending can be used to encourage an increase in research and development

21
Q

How does fiscal policy affect improvements in human capital?

A

Government spending on education and training programmes = better quality of workforce

22
Q

What is the unemployment trap?

A

Where individuals receive more in benefit payments than they would be paid if they were in a job