Lecture 7

• What are the public interventions in the economy by public administrations?

  Public administrations intervene through taxes, services, transfers, and regulations.
• What are automatic stabilizers in fiscal policy?


  Automatic stabilizers are expenditures that adjust automatically with economic conditions, like unemployment benefits.
• Give an example of an automatic stabilizer.


  If economic growth declines and unemployment rises, public expenditure on benefits increases, stabilizing private consumption.
• What is discretionary fiscal policy?


  Discretionary fiscal policy involves deliberate decisions to influence the economy, such as constructing infrastructure or adjusting taxes.
• Give an example of discretionary fiscal policy.


  Building a new road during low economic growth to boost employment.
• What are the reasons for regulation by public administrations?

  • managing market power
  • reducing externalities
  • addressing incomplete information
• What is the purpose of regulating market power?

  To increase competition and avoid dominant market positions, such as establishing rules for mergers.
• What is the aim of regulating externalities?

  To reduce negative external effects by making firms internalize costs, such as emissions.
• What is the goal of addressing incomplete information through regulation?

  To reduce information asymmetry, such as certification of university degrees.
• What was the general government expenditure and revenue in the EU in 2020?

  General government expenditure was 53.0% of GDP, and revenue was 46.2%, resulting in a deficit.
• What was the average general government deficit in the EU in 2023?

  The average deficit was 3.5% of GDP.
• Which countries had the highest deficits in the EU in 2023?

  Italy (-7.4%), Hungary (-6.7%), Romania (-6.6%).
• What is the Stability and Growth Pact (SGP)?

  The SGP ensures the sustainability of public budgets while allowing flexibility in economic crises, with limits on deficits and debt, and fines for non-compliance.
• What are the components of the SGP?

  • Excessive Deficit Procedure (EDP)
  • Preventive Arm
  • Corrective Arm
• What is the Excessive Deficit Procedure (EDP)?

  EDP limits deficits to 3% of GDP and debt to 60% of GDP, with fines for non-compliance.
• What is the purpose of the Preventive Arm of the SGP?

  To apply peer pressure to avoid reaching deficit and debt limits during bad years, with annual fiscal plan submissions by member states.
• What is the Multiannual Financial Framework (MFF)?

  The MFF ensures predictable and disciplined EU spending over seven years, defining maximum amounts for major expenditure areas.
• What is the current MFF (2021-2027) budget?

  The current MFF budget is €1.211 trillion.
• What is NextGenerationEU?


  NextGenerationEU is a temporary recovery instrument of €806.9 billion, distributed through grants and loans, focusing on public investments, green and digital projects.
• What must member states do to receive funds from NextGenerationEU?

  Member states must submit Recovery and Resilience Plans to receive funds.
• What is the formula for the Debt-to-GDP Ratio?

  Debt-to-GDP Ratio = (Total Government Debt / GDP) * 100
• Provide an example calculation for the Debt-to-GDP Ratio.

  If a country's total government debt is €1 trillion and its GDP is €2 trillion, the Debt-to-GDP ratio is (1 trillion / 2 trillion) * 100 = 50%.
• What is the formula for the Deficit-to-GDP Ratio?

  Deficit-to-GDP Ratio = (Government Deficit / GDP) * 100
• Provide an example calculation for the Deficit-to-GDP Ratio.

  If a country's deficit is €50 billion and its GDP is €1 trillion, the Deficit-to-GDP ratio is (50 billion / 1 trillion) * 100 = 5%.
• What are automatic stabilizers in fiscal policy?


  Automatic stabilizers are expenditures that adjust automatically with economic conditions, like unemployment benefits.
• Give an example of an automatic stabilizer.


  If economic growth declines and unemployment rises, public expenditure on benefits increases, stabilizing private consumption.
• What is discretionary fiscal policy?


  Discretionary fiscal policy involves deliberate decisions to influence the economy, such as constructing infrastructure or adjusting taxes.
• Give an example of discretionary fiscal policy.


  Building a new road during low economic growth to boost employment.
• What are the reasons for regulation by public administrations?

  Reasons for regulation include managing market power, reducing externalities, and addressing incomplete information.
• What is the purpose of regulating market power?

  To increase competition and avoid dominant market positions, such as establishing rules for mergers.
• What is the aim of regulating externalities?

  To reduce negative external effects by making firms internalize costs, such as emissions.
• What is the goal of addressing incomplete information through regulation?

  To reduce information asymmetry, such as certification of university degrees.
• What was the general government expenditure and revenue in the EU in 2020?

  General government expenditure was 53.0% of GDP, and revenue was 46.2%, resulting in a deficit.
• What was the average general government deficit in the EU in 2023?

  The average deficit was 3.5% of GDP.
• Which countries had the highest deficits in the EU in 2023?

  Italy (-7.4%), Hungary (-6.7%), Romania (-6.6%).
• What is the Stability and Growth Pact (SGP)?

  The SGP ensures the sustainability of public budgets while allowing flexibility in economic crises, with limits on deficits and debt, and fines for non-compliance.
• What are the components of the SGP?

  • The SGP includes the Excessive Deficit Procedure (EDP)
  • Corrective Arm
  • Preventive Arm
• What is the Excessive Deficit Procedure (EDP)?

  EDP limits deficits to 3% of GDP and debt to 60% of GDP, with fines for non-compliance.
• What is the purpose of the Preventive Arm of the SGP?

  To apply peer pressure to avoid reaching deficit and debt limits during bad years, with annual fiscal plan submissions by member states.
• What is the Multiannual Financial Framework (MFF)?

  The MFF ensures predictable and disciplined EU spending over seven years, defining maximum amounts for major expenditure areas.