KK18 - The stance of Budgetary Policy

Question 1

Budget Stance

Answer 1

-Separate to budget outcome
-Relates to whether the change in budget outcome is intended to have an expansionary, neutral or contractionary impact on level of AD.

Question 2

Budget Deficit Stance

Answer 2

-More expenditure (money flooding into economy)
-More eco activity = expansionary (AD)
-Budget deficit grows in size as a percentage of GDP = more expansionary stance (in terms of AD effect)
-Budget deficit falls in size as a percentage of GDP = less expansionary stance

Question 3

Budget Surplus Stance

Answer 3

-More revenue (money taken out of the economy)
-Less economic activity = contractionary (AD)
-Budget surplus grows as a percentage of GDP = more contractionary stance (in terms of AD effect)
-Budget surplus falls as a percentage of GDP = less contractionary stance