Ch. 30

• What does fiscal policy involve?

  Government decisions on expenditure, taxation, and borrowing
• What is the government budget?

  The balance between government receipts and outlays
• What is government current expenditure?

  Spending on goods and services
• What are transfer payments?

  Benefits provided to poor households by the government
• What is government capital expenditure?

  Spending on capital projects
• What is a government budget deficit?

  When expenditure exceeds revenue
• What is a government budget surplus?

  When expenditure is less than revenue
• What is a balanced budget?

  When expenditure equals revenue
• What is a cyclical deficit?

  A deficit during a downturn of the business cycle
• What is a structural deficit?

  A deficit that persists at full employment
• What is national debt?

  Total amount of government debt
• What are automatic stabilisers?

  Expenditure and revenue that vary with the economic cycle
• What is discretionary fiscal policy?

  Government intervention to stabilize the economy
• What is crowding out?

  Increased government expenditure raises borrowing costs
• What is crowding in?

  Decreased government expenditure lowers borrowing costs
• What is a direct tax?

  A tax levied directly on income
• What is a progressive tax?

  A tax with a rising marginal tax rate
• What is a marginal tax rate?

  Tax on additional income
• What is an indirect tax?

  A tax on expenditure, like VAT
• What is a regressive tax?

  A tax that burdens poorer members more
• What is a proportional tax?

  A tax that is proportional to income