A policy that changes the taxes and government spending in order to meet macroeconomic objectives. Whilst monetary policies are the main policy when affecting 'AD', fiscal policies fine-tune the economy.
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What is a key date, in the calender, for fiscal policies? (P217)
Fiscal policies are delivered in the budget; where the government sets out its forecast of spending and taxation for the coming tax year.
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What are the three types of government spending? (P219)
Current Spending (day-to-day running of public sector, e.g. raw materials), Capital Spending (trying to improve the economy's productive capacity; e.g. building roads), and Transfer Payments (given to people for no service in return; e.g. benefits).
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What is a budget deficit? (P219)
This is where government spending exceed what it receives from taxes and other sources, e.g. sales of government services. You can also have a 'budget surplus', and a 'balanced budget'.
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What is 'PSNCR' and 'PSDR'? (P219)
The 'PSNCR' (public sector net cash requirement) is the borrowing by the government to finance the public sector deficit. The 'PSDR' (public sector debt repayment) occurs in a budget surplus, and is used to pay back borrowed money.
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What are the effects of the economy being in a boom on the budget deficit? (P220)
In a boom the amount the government receives in both direct and indirect taxes is high. Also, unemployment is lower, so less is spent out on benefits. This will help to either reduce the budget deficit, or create a budget surplus.
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What is the government doing when implementing an expansionary fiscal policy? (P220)
They can either cut taxes or increase expenditure, to boost 'AD' (it depends on the 'marginal propensity to save' how much extra income is spent). However they must be careful that demand-pull inflation does not occur, if they stimulate 'AD' to much.
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What is the multiplier effect? (P222)
This is where the value of an injection is different to the original value; e.g. government injects £1bn on roads, workers then spend some of the extra income (e.g in cafes), who then spend their extra income... The value at the end is greater.
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How can a fiscal policy affect the supply-side of the economy? (P222)
Labour productivity increases (through income tax cuts), Rise in capital spending (shifting the 'LRAS' curve right), Entrepreneurship (though government spending on new businesses), Research and Development (through spending and tax credits).
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Other cards in this set
Card 2
Front
What is a key date, in the calender, for fiscal policies? (P217)
Back
Fiscal policies are delivered in the budget; where the government sets out its forecast of spending and taxation for the coming tax year.
Card 3
Front
What are the three types of government spending? (P219)
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