Fiscal Policy and Supply-Side Policies

Question 1

Automatic stabilisers

Answer 1

Parts of fiscal policy that automatically react to changes of the economic cycle

Question 2

Balanced budget

Answer 2

Achieved when government expenditure equals government revenue

Question 2

Budget deficit

Answer 2

Achieved when government expenditure exceeds government revenue

Question 3

Budget surplus

Answer 3

Achieved when government revenue exceeds government expenditure

Question 4

Contractionary fiscal policy

Answer 4

Fiscal policy implemented to decrease aggregate demand

Question 5

Corruption

Answer 5

Government failure through abuse of power

Question 6

Crowding out

Answer 6

When an increase in government spending displaces private spending, with little to no increase in aggregate demand

Question 7

Cyclical budget deficit

Answer 7

Part of the budget that tends to rise in economic slumps and fall in economic booms

Question 7

Debt sustainability

Answer 7

The ability to manage debt so that it doesn’t impede growth or stability

Question 8

Deficit financing

Answer 8

Borrowing to finance a budget deficit

Question 9

Deindustrialisation

Answer 9

Decline in the manufacturing industry of an economy

Question 10

Demand-side policy

Answer 10

Government policies that aim to alter aggregate demand in the economy

Question 11

Deregulation

Answer 11

Removing regulations

Question 12

Direct tax

Answer 12

A tax on income and wealth

Question 13

Discretionary fiscal policy

Answer 13

Altering taxation and government spending as a response to an economic cycle stimulus (e.g. a recession)

Question 14

Dumping

Answer 14

When a producer exports products at a price lower than the prices charged in their home country, or lower than the costs of production

Question 15

Expansionary fiscal policy

Answer 15

Fiscal policy implemented to increase aggregate demand

Question 16

Fiscal austerity

Answer 16

When the government enacts policies to reduce the size of a fiscal deficit

Question 17

Fiscal policy

Answer 17

Use of government spending and taxation to achieve macroeconomic objectives

Question 18

Fiscal stimulus

Answer 18

Changing taxation and government spending to boost demand and output

Question 19

Human capital flight (Brain drain)

Answer 19

When economies experience net outward migration of skilled/ young workers

Question 20

Hypothecation

Answer 20

When tax revenue is saved to be used later for a specific purpose

Question 21

Indirect tax

Answer 21

A tax on expenditure

Question 22

Interventionist policies

Answer 22

Occur when the government intervenes in, and sometimes replaces, free markets

Question 23

Laffer curve

Answer 23

Curve illustrating the relationship between tax revenues and tax levels

Question 24

Marketisation

Answer 24

Shifting the provision of goods or services from the non-market sector to the market sector

Question 25

National debt

Answer 25

Unpaid government debt

Question 26

Natural rate of unemployment (NRU)

Answer 26

(NRU): Unemployment rate when the aggregate labour market is in equilibrium

Question 26

Principle of taxation (canon of taxation)

Answer 26

Criterion used to judge whether a tax is good or bad

Question 27

Privatisation

Answer 27

Shifting the ownership of state-owned assets to the private sector

Question 28

Progressive taxation

Answer 28

Taxes where a larger proportion of income is paid as income rises

Question 28

Proportional taxation

Answer 28

Taxes where the same proportion of income is paid as income rises

Question 29

Reflationary policies

Answer 29

Policies to increase aggregate demand, with intent to increase real output and employment

Question 30

Regressive taxation

Answer 30

Taxes where a smaller proportion of income is paid as income rises

Question 31

Reindustrialise

Answer 31

Growth in the manufacturing industry of an economy

Question 32

Structural budget deficit

Answer 32

Part of the budget that is unaffected by the economic cycle, and is more dependent on the decisions of the government

Question 33

Supply-side

Answer 33

Relates to changes in potential output of the economy which is affected by the factors of production

Question 34

Supply-side improvements

Answer 34

Reforms undertaken by the private sector to enable firms to become more productively efficient

Question 35

Supply-side policies

Answer 35

Use of interventionist policies to encourage efficient markets, thus achieving macroeconomic objectives

Question 36

Tax threshold

Answer 36

The level above which income tax must be paid