A budget surplus occurs when revenue exceeds expenditure.
True
Possible budget balances in order of their condition
1️⃣ Budget Surplus
2️⃣ Balanced Budget
3️⃣ Budget Deficit
A balanced budget is sustainable in the long run but may limit flexibility during economic downturns
Government spending increases aggregate demand and stimulates economic growth.
True
Government expenditure is a key fiscal policy tool used to influence economic activity
What role does automatic expenditure play in the economy?
Acts as an automatic stabilizer
Indirect taxes increase the price of goods and services, affecting consumer demand and inflation.
True
What type of taxes are levied directly on individuals and businesses?
Direct taxes
Government spending is the only tool used in fiscal policy.
False
What is fiscal policy used for in the economy?
Influence economic activity
A budget surplus occurs when government revenue exceeds expenditure.
True
Match the budget balance with its economic impact:
Budget Surplus ↔️ Debt reduction
Budget Deficit ↔️ Stimulate economy
Balanced Budget ↔️ Sustainable long term
Discretionary expenditure is spending that the government can directly control and adjust, such as on public services, infrastructure, and welfare programs
Automatic expenditure acts as an automatic stabilizer during recessions.
True
Match the tax type with its definition:
Direct Taxes ↔️ Levied on income or profits
Indirect Taxes ↔️ Levied on goods and services
How can increasing taxes help an overheating economy?
Slow it down
Discretionary government spending directly boosts aggregate demand.
True
Boosting government spending on public works reduces unemployment.
True
How can tax cuts affect the budget deficit?
Worsen the deficit
The government budget outlines estimated revenue and expenditure
What is a budget deficit?
Expenditure exceeds revenue
A budget deficit can stimulate the economy in the short term but lead to debt accumulation.
True
What are the two key fiscal policy tools?
Government spending and taxation
What is the economic impact of taxation?
Controls inflation or stimulates growth
Discretionary expenditure includes spending on public services and infrastructure.
True
Direct taxes affect disposable income and can influence consumption and investment
How can the government use discretionary changes in taxation to influence the economy?
Stimulate growth or slow down inflation
Increasing taxes can help slow down an overheating economy
Match the tax type with its economic impact:
Direct Taxes ↔️ Affect disposable income
Indirect Taxes ↔️ Increase the price of goods
The government budget outlines its estimated revenue and expenditure
What is the economic impact of a budget deficit?
Debt accumulation
What are the two main tools of fiscal policy?
Government spending and taxation
Discretionary government spending increases aggregate demand
Automatic spending acts as an automatic stabilizer during recessions.
True
What is the economic impact of direct taxes on disposable income?
Reduce disposable income
Which type of government expenditure increases during recessions to support the economy?
Automatic expenditure
What is government expenditure used for in fiscal policy?
Influence economic activity
Direct taxes affect disposable income and influence consumption and investment decisions