Fiscal Policy Flashcards
(10 cards)
What is fiscal policy?
Decisions about government spending, taxation and borrowing that affect aggregate demand in the economy.
What is fiscal surplus?
Fiscal surplus- Government revenue is higher than government expenditure
Likely to have a positive impact.
If a government collects more revenue than it spends, it could be used to pay off national debt, reducing future interest payments and strengthen nations finances.
It is important to focus on size of deficit in relation to nations GDP. The amount that needs to be borrowed to cover deficit is only a serious problem if it is a large percentage of GDP.
What is fiscal deficit?
Fiscal deficit- Government expenditure is higher than government revenue
Over a long period of time, most governments would prefer to avoid running a fiscal deficit.
If a government plans to overspend, it will have to borrow money to fund the deficit
Governments have to spend more of its revenue paying off the debt. Interest payments have…
Additionally future generations may be burned with the debt of ‘today’. Fairness?
What are the advantages of fiscal surplus?
It could use the surplus to reduce taxes for the residents of the city
Alternatively, it could fund new education and training programmes or improve existing public services such as policing and public safety
If the city has any debts, it has extra funds to repay them with the surplus This reduces the interest payable on any debt and helps the local economy in the future
What are the disadvantages of a fiscal surplus?
Often it means that tax rates may be too high in the first place and this could have a negative impact on the taxpayers of the city
The fiscal surplus could have been caused by cuts to spending on public services in the city which could have a detrimental impact on low-income families who may rely more on these for basic needs resulting in inequality
What are the two types of fiscal policy?
Expansionary fiscal policy- A decrease in taxation and increase in government spending to stimulate aggregate demand in the economy.
Contractionary fiscal policy- An increase in taxation and increase in government spending to reduce aggregate demand in the economy.
What is expansionary fiscal policy?
Expansionary fiscal policy- A decrease in taxation and increase in government spending to stimulate aggregate demand in the economy.
What is contractionary fiscal policy?
Contractionary fiscal policy- An increase in taxation and increase in government spending to reduce aggregate demand in the economy.
What are landfill tax?
Landfill tax- Imposed on the disposal of waste in landfill sites.
What is national debt?
National debt- total amount of money owed by a country.
