Fiscal Policy Flashcards
What are some of they key aspects of fiscal policy to consider
Gov spending Economic cycle Market failures Competitiveness Distribution of income and wealth
What does government spending include
Welfare spending
Public services
State investment
What is current spending
Spending on providing public services such as education and health care
What is capital spending
Spending on new public infrastructure and other items of investment spending
What are the justifications for government spending
- provide a socially efficient level of public goods
- provide welfare benefits
- infrastructure
- equity
- improving economic efficiency and competitiveness
What do free market economists argue
Lower taxation and tight control of GS and borrowing is required to allow the private sector of the economy to flourish
What is government / public sector borrowing
The amount the government must borrow each year to finance their spending
What is public sector / government / national debt
A measure of the accumulated national debt owed by the government sector
What is a rise in indirect taxes an example of
Contractionary fiscal policy designed perhaps to control demand-pull inflationary pressures during an economic boom
Macro impact of rising indirect taxes - inflation
Higher in the SR as businesses pass on tax to consumers
Macro impact of rising indirect taxes - economic growth
Slower as real incomes and demand falls
Macro impact of rising indirect taxes - unemployment
Higher if AD weakens
Macro impact of rising indirect taxes - balance in trade and goods
Improved - falling incomes may cause demand for imports to contract
Macro impact of rising indirect taxes - spare capacity in the economy
Rising smaller capacity from weaker demand
Macro impact of rising indirect taxes - business investment
Decline if businesses are hit by lower profits and weaker consumer spending
