Fiscal Policy

• What is the objective of fiscal policy?

  To promote economic stability
• What is one way government expenditure is used?

  To provide public services such as defence
• How does government expenditure correct market failures?

  By providing necessary public goods and services
• What is the purpose of transfer payments in government expenditure?

  To achieve redistributional objectives
• How does government expenditure nudge consumer behaviour?

  By influencing spending through incentives
• What is direct taxation?

  Taxation on income or wealth
• What is indirect taxation?

  Tax imposed upon expenditure
• How does indirect taxation affect the supply curve?

  It shifts the supply curve upwards
• What are excise duties often levied on?

  Demerit goods
• What is one purpose of taxation?

  To create incentives to work
• How does taxation influence the pattern of demand?

  By altering consumer purchasing power
• What is progressive taxation?

  Tax percentage increases with income
• What is regressive taxation?

  Tax percentage decreases as income increases
• What is proportional taxation?

  Tax percentage remains constant with income
• What does crowding out refer to?

  Government spending reduces private investment
• What are automatic stabilisers?

  Mechanisms that reduce economic impact changes
• What does the Laffer curve illustrate?

  The relationship between tax revenue and rates
• How is the average tax rate calculated?

  Tax paid divided by taxable income
• How is the marginal tax rate calculated?

  Change in tax paid divided by change in income
• What factors affect the effectiveness of fiscal policy?

  Unintended consequences and multiplier size
• What are automatic stabilisers defined as?

  Mechanisms that reduce economic impact changes
• What are average tax rates defined as?

  Tax paid as a proportion of income
• What is a balanced budget?

  When spending equals tax revenue
• What is a budget deficit?

  When spending exceeds revenue
• What does the budget position on current expenditure refer to?

  The flow of cash during one period
• What does the budget position/fiscal stance indicate?

  The impact of taxes and spending on the economy
• What is a budget surplus?

  When revenue exceeds spending
• What is capital government expenditure?

  Spending on long-term investment goods
• What is crowding in?

  Government borrowing increases private investment
• What is current government expenditure?

  Spending on short-term goods and services
• What is a cyclical budget position?

  A temporary position related to the business cycle
• What is a direct tax?

  Taxes imposed on income paid directly
• What is discretionary fiscal policy?

  Deliberate manipulation of taxes and spending
• What is fiscal policy?

  Use of spending and taxation to influence AD
• What are fiscal rules?

  Long-term constraints on fiscal policy
• What is government expenditure?

  Spending for goods and services provision
• What is an indirect tax?

  Tax passed on to consumers by businesses
• What does the Laffer curve show?

  Tax rates do not always increase revenue
• What is the marginal rate of tax?

  The rate applied to the last unit of income
• What is national debt?

  The total government debt over years