Public Sector Finances Flashcards
(7 cards)
What is the difference between automatic stabilisers and discretionary fiscal policy?
Automatic stabilisers: government expenditure that automatically adjusts depending on the state of the economy
Discretionary fiscal policy: When government deliberate changes its expenditure to influence AD (e.g. changing rate of tax, spending)
What is the difference between fiscal deficit and national debt?
Fiscal deficit: when government spending > government tax revenue
National debt: the accumulation of all previous deficits
What is the difference between cyclical deficit and structural deficit?
Cyclical deficit: When size of the fiscal deficit is influenced by the state of the economy.
Structural deficit: When budget deficit occurs regardless of the state of the economy
What are the factors that influence size of FISCAL DEFICIT?
- Business cycle
- External shock
- Macro-objectives (full employment vs protecting environment)
What are the factors that influence size of NATIONAL DEBT?
- Size of budget deficit
- Government policy (whether they borrow or have a contractionary fiscal policy)
What are the impact of budget deficit/national debt on
Interest rates
Financial crowding out
Future generations
IR:
Government borrows -> Demand for borrowed money rises -> Price of borrowed money increases -> Interest rate rises
FCO:
IR rises -> cost of borrowing rises -> firms less likely to borrow -> this is financial crowding out
Future generations:
Assuming high national debt -> amount of interest paid by government rises -> austerity policy -> high taxation, low expenditure -> disposable income drops -> standard of living drops
What are they?
o World Bank
o International Monetary Fund (IMF)
o NGOs
World Bank: Provides loans to country
IMF: Provides loans to country, and aims to stabilise exchange rates
NGOs: Non-government volunteered loans
