Chapter 26: Government expenditure and net trade

1. What is the fiscal policy? 

The decisions about government spending, taxes and government borrowing. 

1. How does changes in government spending affect total spending in the economy? 

High government spending can increase total spending and affect rates of unemployment and inflation. 

1. When in a recession, what may the government do? 

As there is high unemployment, the government may increase spending on unemployment benefits. This reduces unemployment and boosts demand in the economy. 

1. What varies the impact of government spending? 

The levels of taxation. If tax increases by the same amount of government spending is increased then there is little impact on the economy. 

1. Define a 'budget deficit' and why it is different to 'budget surplus'. 

A 'budget deficit' is when government spending is greater than government receipts. A 'budget surplus' is when government spending is less than government receipts. Therefore the government has more money saved than more money spent. 

1. What are the factors that affect…