Fiscal Policy

    Cards (20)

    • Fiscal Policy

      Government need to regulate the economy when it is in contraction/recession phase
    • Recession
      The way government manage the economy during expansionary phase will be different with how they do during recession
    • Expansion
      Therefore, government need to use their power to collect tax and to spend taxpayer's money depending on current economic situation
    • How government manage the economy
      Adjust the government spending, tax revenue and transfer payment to influence the consumption patterns of consumers
    • Fiscal policy tools
      Government spending (G), taxes (T) and transfer payments
    • GDP = C + I + G + X
      When government use different fiscal policy tools to change C, mathematically, GDP will change too
    • Discretionary Fiscal Policy
      The use of fiscal policy tools like government spending (G), taxes (T) and transfer payments to stabilize the economy
    • Fiscal Policy Tools
      • Government expenditure to build and produce public capital assets
      • Taxes (SST, income tax, capital gain tax)
      • Transfer Payments (SARA, STR, E-Madani)
    • Expansionary Fiscal Policy
      Designed to fight the pressures of recession
    • Expansionary Fiscal Policy
      1. Increase government spending on goods and services
      2. Increase transfer payments
      3. Decrease taxes
    • Increase government spending
      Increases the production of goods and services, national income, consumption expenditure, and GDP
    • Increase transfer payments
      Increases people's disposable income, consumption expenditure, and GDP
    • Decrease taxes
      Increases people's disposable income, consumption expenditure, and GDP
    • Contractionary Fiscal Policy

      Designed to fight the pressures of demand-pull inflation
    • Contractionary Fiscal Policy
      1. Decrease government spending
      2. Decrease transfer payments
      3. Increase taxes
    • Decrease government spending
      Decreases the production of goods and services, national income, consumption expenditure, and economic growth
    • Decrease transfer payments
      Decreases people's disposable income, consumption expenditure, and economic growth
    • Increase taxes
      Decreases people's disposable income, consumption expenditure, and economic growth
    • Budget deficit occurs when the government spending is greater than tax revenues for a given fiscal year (G > T)
    • Budget surplus occurs when government spending is lower than tax revenues for a given fiscal year (T > G)