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Economics AS (Macroeconomics) > Fiscal Policy > Flashcards

Flashcards in Fiscal Policy Deck (22):
1

Define Fiscal Policy?

A collection of policies about government decisions and actions on taxation and government spending, and government borrowing.

2

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

3

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

4

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

5

What is fiscal policy to increase economic activity known as?

-Expansionary policy
-Reflationary policy

6

What is fiscal policy to decrease economic activity known as?

-Contractionary policy
-Deflationary policy

7

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-more withdrawn from the circular flow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.

8

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-less money withdrawn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

9

What are the issues concerning a government policy and how well it will work?

-Flexibility
-Visibility
-Reach
-Conflicting effects
-Time lags
-Forecast accuracy

10

Explain flexibility?

-How easy a policy is to implement
-How frequently it can be changed

11

Explain visibility?

-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

12

Explain Reach?

-How many people are affected

13

Define a time lag?

-The time between the occurrence of the problem and the desired effect of a policy applied to it

14

What are the three stages of a time lag?

-Recognition lag
-Implementation lag
-Behavioural lag

15

Explain recognition lag?

-The time taken to realise that a problem exists

16

Explain Implementation lag?

-The time taken to put a policy in place

17

Explain behavioural lag?

-The time it takes for households and firms to react to a policy

18

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

19

Define the government's budget?

The difference between a government's income and its spending

20

When is the governments budget balanced?

Income=Spending

21

When is the Governments budget in a surplus?

Income > spending

22

When is the governments budget in a deficit?

Spending > Income