Fiscal Policy

Question 1

What is a fiscal policy?

Answer 1

• Any policy to do with government spending, taxation and borrowing.
• Govt. led

Question 2

What is Monetary Policy?

Answer 2

• Any policy to do with interest rates, money supply, and managing the exchange rate.
• Central Bank led. (i.e: the Bank of England)

Question 3

What is a Supply-side policy?

Answer 3

• Any policy intending to increase the productive “potential” of the economy, e.g: shifting of LRAS to the right.
• Increasing the quantity and quality of the factors of production.

Question 4

Expansionary Fiscal Policy?

Answer 4

• Designed to boost AD/AS.
• Cutting taxes
• Raising govt. spending.
• Borrowing (creating debt).

Question 5

Contractionary Fiscal Policy?

Answer 5

• Designed to reduce AD/AS.
• Increasing taxes.
• Cutting government spending.
• Reducing borrowing (reducing debt burden).

Question 6

What are Automatic Stabilisers?

Answer 6

• Changes in tax revenues and govt. spending that come about automatically as the economy moves through the economic cycle.

Question 7

Discretionary Changes?

Answer 7

• Deliberate change in taxation and govt. spending such as govt. spending.