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68-qa-aqaecon2

68-qa-aqaecon2 - Macroeconomic policy What is a policy A...

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30 Macroeconomic policy | Macroeconomic policy What is a policy? A policy is a course of action designed to achieve a stated objective List the main macro policies. Government can use fiscal monetary or supply side policies Why does government need macroeconomic policies ? Macro policies allow the government to influence the demand or supply side of the economy to meet macroeconomic objectives. Distinguish between policy instruments, policy measures, and policy tools. These terms have identical meaning and refer to methods used by government to influence economic activity Budgets What is the budget? An annual report setting out government tax plans Define net government spending. The difference between public expenditure and tax receipts Define a budget surplus. The amount by which government income exceeds government spending over a time period eg one year Define a budget deficit. The amount by which government spending exceeds government income over a time period eg one year Identify the key elements of a budget deficit . There are two main causes of a budget deficit Cyclical deficit : caused by the downturn and recession stages of the economic cycle when tax receipts fall and spending on unemployment related benefits rise Structural deficit : caused by a fundamental imbalance between government spending and receipts. Structural deficits occur at potential GDP because government receipts are too low to sustain public spending How can the government tackle a cyclical deficit? Cyclical deficits disappear during the recovery and boom stages. Economic growth raises tax revenues and cuts benefit payments How can governments tackle structural deficits?
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