fiscal policy

• What is fiscal policy?

  Fiscal policy is a macroeconomic policy involving changes to government spending and taxation to influence aggregate demand.
• What are the two types of fiscal policy?

  Expansionary and contractionary fiscal policy.
• What is the aim of expansionary fiscal policy?

  To boost aggregate demand.
• What is the aim of contractionary fiscal policy?

  To reduce aggregate demand.
• Why might a government use expansionary fiscal policy?

  To increase economic growth, reduce unemployment, increase demand-pull inflation, and redistribute income.
• How does expansionary fiscal policy help reduce unemployment?

  By increasing aggregate demand, which leads to more goods and services being produced, requiring more workers.
• What is demand-pull inflation?

  Inflation that occurs when aggregate demand increases, leading to higher prices.
• What is one theoretical reason for using expansionary fiscal policy related to inflation?

  To achieve a slight increase in inflation if the inflation rate is below target.
• How can expansionary fiscal policy help reduce income inequality?

  Through government spending on welfare benefits and reducing tax rates for lower income brackets.
• Why might a government want to use contractionary fiscal policy?

  To cool down an overheating economy and reduce inflation.
• What is the primary reason for contractionary fiscal policy?

  To reduce the budget deficit and overall government debt.
• How can contractionary fiscal policy help redistribute income?

  By implementing higher taxes on the wealthy to fund income top-ups for the poor.
• How does contractionary fiscal policy affect the current account deficit?

  By reducing aggregate demand, leading to lower incomes and less expenditure on imports.
• What is the primary focus of expansionary fiscal policy?

  To boost aggregate demand.
• What are the examples of expansionary fiscal policy measures?

  • Cutting income tax
  • Reducing corporation tax
  • Reducing regressive taxes like VAT
  • Increasing government spending on healthcare, education, and infrastructure
• How does cutting income tax affect aggregate demand?

  It increases disposable income, leading to higher consumption and boosting aggregate demand.
• What is the effect of cutting corporation tax on aggregate demand?

  It increases retained profits for businesses, leading to higher investment and boosting aggregate demand.
• How does reducing regressive taxation like VAT impact aggregate demand?

  It increases disposable income for lower-income individuals, leading to higher consumption and boosting aggregate demand.
• How can government spending on healthcare and education boost aggregate demand?

  By increasing government spending, which directly boosts aggregate demand in the economy.
• What is the relationship between expansionary fiscal policy and long-run aggregate supply (LRAS)?

  While the primary focus is on boosting aggregate demand, it can also have side effects that increase the productive potential of the economy.
• How can cutting income tax incentivize inactive individuals to join the labor force?

  By increasing disposable income, which encourages inactive individuals to seek employment.
• How does cutting corporation tax affect investment and LRAS?

  It boosts investment, which can increase both aggregate demand and long-run aggregate supply.
• How can government spending on education and health boost LRAS?

  By improving the productivity of labor, which increases the quality of labor and boosts LRAS.
• What is the primary intention of expansionary fiscal policy?

  To boost aggregate demand, with any increase in LRAS being a side effect.
• What will the next video in the playlist cover?

  It will go into more detail about the issues of expansionary fiscal policy and key evaluation points.
• What is the multiplier effect in the context of expansionary fiscal policy?

  The multiplier effect refers to the phenomenon where an increase in aggregate demand leads to higher incomes, which in turn leads to more spending and further increases in aggregate demand.
• What is the marginal propensity to consume?

  The marginal propensity to consume is the proportion of additional income that households spend on consumption.
• How does regressive taxation affect lower-income individuals?

  Regressive taxation takes a larger percentage of income from lower-income individuals compared to higher-income individuals.
• How does government spending on infrastructure impact the economy?

  It can increase productive efficiency and boost the quantity of capital in the economy.