Fiscal policy

• Key roles of fiscal policy

  • Correcting market failure
  • Changing the final distribution of income and wealth
  • Stabilising and stimulating AD and GDP growth
  • Improving LRAS
  • Responding to crises caused by external shocks
• Three main types of government spending

  • welfare spending
  • Public services
  • State investment
• Current government spending is on providing public services while capital spending is on building infrastructure and investing in new technology.
• Fiscal balance - Total revenue expenditure. When total revenue is greater than expenditure there is a surplus.