Flashcards in Fiscal Policy Deck (22):
Define Fiscal Policy?
A collection of policies about government decisions and actions on taxation and government spending, and government borrowing.
What is the relationship with tax and AD and AS?
-Tax goes up, AD goes down, AS goes down
-Tax goes down, AD goes up, AS goes down
What is the relationship between Government Spending, AD and AS?
-GS goes up, AD goes up, AS goes up
-GS goes down, AD goes down, AS goes down
What is the purpose of fiscal policy?
-Influence AD and AS
-Soothing cyclical fluctuations
-Changing income distribution
-Altering the balance between the public and private sector
-Balancing the government budget
What is fiscal policy to increase economic activity known as?
What is fiscal policy to decrease economic activity known as?
Give an example of automatic stabilisers for rising AD?
-There's a risk of AD > AS - which may lead to inflation
-Tax: more tax will be paid
-more withdrawn from the circular flow
-Benefit: less benefits will be paid
-less injected in the circular flow
-A brake is applied to economic growth, the rise in AD slows down.
Give an example of automatic stabilisers for falling AD?
-There's a risk of high unemployment and insufficient output- negative output gap
-Tax: less tax will be paid
-less money withdrawn
-Benefits: more benefits will be paid
-more injections into the circular flow
-A brake is applied to recession, the fall in AD slows down
What are the issues concerning a government policy and how well it will work?
-How easy a policy is to implement
-How frequently it can be changed
-How aware households and firms are
-different taxes have different disabilities
-governments tend to: change VAT rather than income tax, change national insurance rather than income tax
-How many people are affected
Define a time lag?
-The time between the occurrence of the problem and the desired effect of a policy applied to it
What are the three stages of a time lag?
Explain recognition lag?
-The time taken to realise that a problem exists
Explain Implementation lag?
-The time taken to put a policy in place
Explain behavioural lag?
-The time it takes for households and firms to react to a policy
What are the problems with forecasting?
-To achieve the desired effect of an AD/AS policy the future has to be predicted:
-future economic performance has to be predicted correctly
-the extent of the effect of automatic stabilisers
-the multiplier effect
Define the government's budget?
The difference between a government's income and its spending
When is the governments budget balanced?
When is the Governments budget in a surplus?
Income > spending