Fiscal Policy - Economics Unit 2 (AQA)

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  • Created on: 22-01-13 19:15
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Fiscal Policy ­ Revision Sheet
Controlling the macroeconomy through changes in Government spending and
Taxation levels.
Direct impacts are on AD
Impacts can also affect SRAS
Fiscal policy is now much more used to `fine-tune' the supply side of the economy
Prime Instrument = Government Spending & Taxation Levels
Key Types of Tax Manipulated:
Income tax rates & personal allowances
Social security payments (NI contributions)
VAT and Excise Duties
Government Spending Categories:
Current Spending = Day-to-day running of public sector activities (Purchasing raw
materials used in schools and hospitals ­ Also the wages of public sector workers)
Capital Spending =To improve the productive capacity of the economy ­ Investment
in infrastructure such as roads, railways, schools, hospitals
Transfer Payments = Payments to individuals for which no service is given in return
­ Jobseekers allowance, disability benefits
Budget Deficit and Surpluses
Budget Deficit = Government spending exceeds Government revenue
Budget Surplus = Government revenue exceeds Government expenditure
Eliminate Deficit:
Raising Taxation
Cutting Spending
Can finance a deficit by borrowing ­ PSNCR (Public sector net cash requirement)
Can use surplus to pay back over expenditure from previous borrowings

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Economic Cycle
Tax Revenues ­ When economy is expanding, amount of tax revenue increases ­ takes
money out of circular flow of income and spending
Welfare Spending ­ Growing economy means that government does not have to spend as
much on welfare benefits (income support and unemployment benefits)
Demand Side Fiscal Policy
Discretionary Fiscal Policy = Deliberate changes in direct and indirect taxation and
government spending too influence the economy
Increase AD (Expansionary):
Cut Taxes (More Consumption)
Increase Government Spending (More Government Expenditure)
Evaluation: If…read more

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Supply Side Fiscal Policy
Changes to fiscal policy can affect the supply side of the economy and therefore contribute
to long term economic growth.…read more



really great notes


A set of notes on fiscal policy that also covers the supply side aspect of fiscal policy. Less on the demand side that might be required for the exam but a good summary.

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