Theme 4: Public Sector Finances

Question 1

What are the 2 types of budget deficits?

Answer 1

1. Cyclical deficits
2. Structural deficits

Question 2

What is a cyclical deficit?

Answer 2

Only occurs during times of recession due to high public expenditure and low tax revenue.

Question 3

What is a structural deficit?

Answer 3

Even in times of boom, they remain at any stage of the business cycle.

Question 4

National debt?

Answer 4

The total debt built up by a government borrowing over time.

Question 5

How do high budget deficits and high national debt impact interest rates?

Answer 5

Increase interest rates

Question 6

What are the 3 impacts of budget deficits and national debt?

Answer 6

1. Interest rates
2. Financial crowding out- less likely borrow as higher interest rates
3. Impact on future generations- have to pay off debt eventually so higher tax and lower public expenditure