Fiscal and Supply Side Policies

Question 1

What are the 3 types of government spending

Answer 1

Capital: investment into infrastruture e.g. hs2
Current: day to day spending on public sector e.g wages for teachers, NHS
Transfers: Benefits, aid, contributions to IMF

Question 2

What are some sources of government income

Answer 2

Direct and Indirect taxation: income, inheritance, VAT, tariffs, council tax, stamp duty, excise duties.
Aid from other countries

Question 3

What are fiscal policies

Answer 3

Policies which alter government income or expenditure, e.g. raising taxes, cutting benefits, spending on infrastructure.

Question 4

What are supply side policies?

Answer 4

Policies affecting factor of production quantity or quality, hence affecting LRAS

Question 5

Define interventionist Supply Side Policies and give examples (Graph where possible)

Answer 5

Policies where government directly intervene to reallocate resources and correct market failure.

Examples:
* Spending on NHS, education, infrastructure
* Nationalisation
* Taxation
* Subsidies
* Regulation
* Price controls

Question 6

Define Market Based Supply Side Policies and give examples (Graph where possible)

Answer 6

Policies which improve the ability of market forces to allocate resources.

Examples:
Privatisation
Tax relief/incentives
Deregulation
trade liberalisation
Labour market reforms

Question 7

What are potential downsides of fiscal policies

Answer 7

Crowding out of other state run industries by alllocating funds to one in particular.

Bond yields are pushed up by issuing new debt to take on a budget deficit, increasing money market interest rate and raising borrowing costs for firms.

Provide an AD stimulus, causing demand pull infltionary pressure.