Public Sector Finances

Question 1

Definition of Public sector net borrowing (PNSB)

Definition of Public sector net debt (PSND)

Answer 1

1. Annual difference between net spending and net taxation. The amount the government needs to borrow
2. The total amount of debt that the government owes the private sector- 89.2% of GDP

Question 2

What is cyclical and structural deficit?

Answer 2

Cyclical- during a recession, borrowing increases

Structural- refers to a budget deficit even if we ignore cyclical factors

Question 3

What are automatic fiscal stabilisers?

Answer 3

Looks at how fiscal policy automatically has an influence on the rate of economic growth and help counter swing economic cycles

Question 4

What is discretionary fiscal policy?

Answer 4

A deliberate effort by the government to influence aggregate demand and the rate of economic growth

Question 5

The factors influencing the size of the fiscal deficit? (5)

Answer 5

1. State of the economy
2. Government spending
3. Fiscal policy
4. Demographics- ageing population need pensions
5. Rules on borrowing levels

Question 6

Factors influencing the size of the national debt? (5)

Answer 6

1. Levels of budget deficits in previous years
2. Rate of economic growth
3. Willingness to invest
4. Unexpected events - war
5. Willingness of the private sector to buy government debt