Unit 13 - Fiscal Policy And Supply-side Policies Flashcards
(31 cards)
Fiscal policy
The use by the government of government spending and taxation to try to achieve the governments policy objectives
Balanced budget
Achieved when government spending equals government revenue (G=T)
Budget deficit
Occurs when government spending exceeds government revenue (G>T). This represents a net injection of demand into the circular flow of income and hence a budget deficit is expansionary.
Budget surplus
Occurs when government spending is less than government revenue (G<T). This represents a net withdrawal from the circular flow of income and hence a budget surplus is contractionary
Demand-side fiscal policy
Used to increase or decrease the level of aggregate demand ( and to shift the AD curve right or left) through changes in government spending, taxation and the budget balance.
Deficit financing
Deliberately running a budget deficit and then borrowing to finance the deficit
Expansionary fiscal policy
Uses fiscal policy to increase aggregate demand and to shift the AD curve to the right
Contractionary fiscal policy
Uses fiscal policy to decrease aggregate demand and to shift the AD curve to the left
Discretionary fiscal policy
Involves making discrete changes to G,T and the budget deficit to manage the level of aggregate demand
Crowding out
A situation in which an increase in government or public sector spending displaces private sector spending, with little or no increase in aggregate demand
Supply side fiscal policy
Used to increase the economy’s ability to produce and supply goods, through creating incentives to work, save, invest and be entrepreneurial. Interventionist supply side fiscal policies, such as the financing of retraining schemes for unemployed workers are also designed to improve supply side performance
Supply side policies
Government economic policies which aim to make markets more competitive and efficient, increase production potential, and shift the LRAS curve to the right. Supply side fiscal policy is arguably the most important type of supply side policy, but there are also non fiscal supply side policies
Total managed expenditure
The total amount that the government spends. It splits into the amount that government departments such as defence have been allocated to spend and spending that is not controlled by a government department, including warfare, pensions and national debt interest payments
Office for budget responsibility
Advisory public body that provides independent economic forecasts and analysis of the public finances as background to the preparation of the uk budget
Direct tax
A tax that cannot be shifted by the person legally liable to pay the tax onto someone else. Direct taxes are levied on income and wealth.
Indirect tax
A tax that cannot be shifted by the person legally liable to pay the tax onto someone else, e.g. through raising the price of a good being sold by the taxpayer. Indirect taxes are levied on spending
Regressive taxation
When the proportion of income paid in tax falls as income increases
Proportional taxation
when the proportion of income paid in tax stays the same as income increases
Principle taxation (canon taxation)
A criterion used for judging whether a tax is good or bad
National debt
The stock of all past government borrowing that has not been paid back
Cyclical budget deficit
The part of the budget deficit which rises in the downswing of the economic cycle and falls in the upswing of the e cycle
Structural budget deficit
The part of the budget deficit which is not affected by the economic cycle but results from structural change in the economy affecting the governments finances, and also from long term government policy decisions
Automatic stabilisers
Fiscal policy instruments, such as progressive taxes and income related welfare benefits, that automatically stimulate the aggregate demand in an economic downswing and depress aggregate demand in an upswing, thereby ‘smoothing’ the economic cycle
Supply side policies
Government economic policies which aim to make markets more competitive and efficient, increase production potential, and shift the LRAS curve to the right. Supply side fiscal policy is arguably the most important type of supply-side policy, but there are also non fiscal supply side policies.
