Fiscal Policy

Fiscal Policy - Fiscal Policy Summary 1 Fiscal Policy A...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Fiscal Policy Summary
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Fiscal Policy A government choice of expenditure policy and a tax and transfer policy is called fiscal policy. Fiscal policy is defined as the use of government purchases, transfer payments and taxes to affect macroeconomic variables such as employment, the price level and the level of real GDP.
Background image of page 2
3 Government Budget Budget surplus occurs when Revenue exceeds Expenditures When Expenditures exceed Revenue, the budget is in a deficit A balanced budget is one where Expenditure equals Revenue
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Government Budget Cyclical Budget Surplus/deficit - The cyclical surplus or deficit is the actual surplus or deficit minus the structural surplus or deficit. Structural Budget Surplus/deficit - The structural surplus or deficit is the budget balance that would occur if the economy were at full employment and real GDP equalled potential GDP.
Background image of page 4
5 Fiscal policies Automatic Stabilisers are revenue and spending items in the Government budget that automatically change with the ups and downs of the economy so as to stabilise disposable income and hence consumption and real GDP. For example, the government income tax is an automatic stabiliser because 1) it requires no action to operate year after year and 2) it reduces the drop in income during recessions as well as the jump in income during expansions. Discretionary Fiscal Policy – requires ongoing decisions involving the deliberate manipulation of government purchases, taxation and transfers to promote macroeconomic goals such as full employment, price stability and economic growth.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 The effect of Discreationary Fiscal policies and multiplier Changes in government spending Changes in Income tax
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 12

Fiscal Policy - Fiscal Policy Summary 1 Fiscal Policy A...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online