Fiscal Policy 0.0 / 5 ? EconomicsFiscal policyA2/A-levelAQA Created by: LucyHigginsCreated on: 12-01-16 10:32 Fiscal Policy Involves the government changing the levels of taxation and government spending in order to influence AD 1 of 8 Expansionary (loose) Fiscal policy Involves increasing AD, therefore government will increase spending (G) and/or cut taxes leading to a bigger budget deficit 2 of 8 Deflationary (tight) Fiscal policy Involves decreasing AD therefore government will cut spending (G) and increase taxes leading to a reduced budget deficit 3 of 8 Automatic Stabilisers If economy is growing, people will automatically pay more taxes, and government will spent less on unemployment benefits. 4 of 8 In a recession Borrowing will increase and tax revenues fall and spending on benefits increases 5 of 8 Discretionary stabilisers A deliberate attempt by the government to affect AD and stabilise the economyeg in a boom the government could increase taxes to reduce inflation 6 of 8 Injections (J) define Increase of expenditure into the circular flow includes government spending (G), Exports (X) and Investment (I) 7 of 8 Withdrawals (W) define Leakages from the circular flow including net savings (S) +Net Taxes (T) + Net Imports (M) 8 of 8
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