fiscal policy Flashcards
(14 cards)
what is fiscal policy?
Fiscal policy involves the use of taxation, public spending and the government’s budgetary position to achieve the governments policy objectives
which economic theorist is fiscal policy associated with?
Fiscal policy is often associated with Keynesian economic theory and policy. Between the 1950s and 1970s, Keynesian governments used Fiscal policy to manage the level of aggregate demand.
what is a budget deficit?
A budget deficit is when government spending exceeds government revenue. Therefore, there is a net injection into the circular flow of income so the budget deficit is expansionary.
what is a balanced budget?
a balanced budget is achieved when government spending equals government revenue.
what is a budget surplus?
a budget surplus is when government spending is less than government revenue . This represents a net withdrawal from the circular flow of income and hence a budget surplus is contradictory.
what is budget day?
The UK’s fiscal year runs for 12 months starting on April 1st. A few weeks before in march, the chancellor of the exchequer presents his budget to the house of commons. Part of the budget speech is published in the red book which contains the chancellors analysis of the budget which economists are most interested in. The public are more interested in the announcement of tax changes..
how does public sector borrowing work in a budget deficit and surplus?
Whenever there is a budget deficit, there is a positive borrowing requirement. When there is a budget surplus, the government can use tax revenues it isn’t spending to repay previous borrowing. In this case, the borrowing requirement is negative.
What is public sector borrowing?
Public sector borrowing is borrowed by the government and other parts of the public sector to finance a budget deficit.
what is Keynesian demand-side fiscal policy?
Keynesian demand side fiscal policy is centred on the use of deficit financing to inject demand into the economy. Deficit financing is when the government runs a budget deficit, usually for several years, deliberately setting public sector spending at a higher level than tax revenue. For each year when the government runs a budget deficit, the shortfall of tax revenue has to be financed through a positive borrowing requirement.
what is demand-side fiscal policy?
demand side fiscal policy is used to increase or decrease the level of aggregate demand through changes in government spending, taxation and the budget balance.
what is deficit financing?
Deficit financing deliberately running a budget deficit and borrowing finance deficit.
what is expansionary fiscal policy?
expansionary fiscal policy is the use of fiscal policy to increase AD and shift AD curve to the right
what is contractionary Fiscal policy?
contractionary fiscal policy uses fiscal policy to decrease AD and shift AD curve to the left.
what is supply-side fiscal policy?
supply side fiscal policy is used to increase the economies ability to produce and supply goods, through creating incentives to work, save, invest and be entrepreneurial. Interventionalist supply-side fiscal policies, such as financing or retraining schemes for unemployed workers, are also designed to improve supply-side performance.
