11

Question 1

Taxes in the trade balance

Answer 1

Tarrif

Question 2

How does tax affect FDI flows ?

Answer 2

MNCs are attracted to low and predictable tax rates

Question 3

Discretionary fiscal policy

Answer 3

Deliberate changes in government spending and tax to influence AD

Question 4

Fiscal deficit

Answer 4

Expenditure> tax

Question 5

National debt

Answer 5

Amount of money government borrows

Question 6

Cyclical debt

Answer 6

Temporary deficit

Question 7

Structural deficit

Answer 7

Imbalance in government revenue and spending

Question 8

Factors influencing the size of fiscal deficits

Answer 8

The business cycle
Interest payments
Privatisation

Question 9

Factors influencing the size of national debt

Answer 9

Structural deficit
If deficit falls, the debt is reduced
Debt can only decrease via a budget surplus

Question 10

Significance of size of fiscal deficits and national debt

Answer 10

Government borrowing increases demand for credit, increasing interest rates
Government raises interest rates to encourage investors to buy bonds
Higher taxes
Crowding out effect