3.6 fiscal polilicy type shit

explain how the government earns revenue (name 3 ways and brief explain)

• taxation → direct taxes and indirect taxes both increases government revenue

• selling of goods and services that are owned by the governmnet → i.e post stamps sold by post office

• sale of government assets → e.g government land is sold to a private sector → privatisation

what are the 3 types of government expenditure, explain briefly

1. Current expenditure → daily expenses, i.e paying labours who work for the government, purchase of goods for consumption by the government

2. capital expenditure → money spent on developing infrastructure, produciton of physical capital → public investment spending

3. transfer payments → unemployment benefits, social welfare payments

what are the 3 types of government budget? hint: budget xxx

1. budget deficit: when revenue < expenditure

2. budget surplus: when revenue > expenditure

3. balanced budget: revenue = expenditure

what is public debt and breifly state the relationship between budget dificit and surpluses and the public debt

the total amount of money that the government have borrowed voer the years that has not been paid back

expected: budget suplrus → able to pay back the loan, decrease in national debt

budget deficit → need to plan ahead by borrowing money → increase in national debt

expansionary vs contractionary each in one line

expansioanry fiscal policy: aimed to increase AD, by increasing governemnt spenidng (G) or decrease taxation to increase C and I

contractionary fiscal policy: to decrease AD, so increase taxation to decrease C and I and decrease governemnt expnditure

maples of expansionary and contractionary fiscal policies expansioanry:

expansionary:

• subisdy → increase governemnt spending and C and I

• decrease/cut income tades → increaese disposbale income increase C and I

contractionary:

• increase taxation on VAT → decrease purchasing power → more proportion of income used → decrease C

• increase sales tax/corporate tax

darw expansionary monetary policy diagra, use entence to explain why this ne d

draw contracitonary fiscal policy epxlain in one sentence why implemented

list the 5 limitaions of fiscal policy

1. time lag

2. political constraint

3. net export effect

4. unable to deal with supply side issues

5. sustainbale debt: over an extended period the probelm may possibly lead to defautl

explain and evaluate time lag

• after implemtning fiscal policy, take time for consumers to adjust their spenidngs and investment or takes time to increase their investment confidence

• also takes long time to gather the reserach to gather and identify problem

• legsislaiotn process takes time!

explain and evaluate politiacl consideraitons

• expansioanry fiscal policy amy increase chances of being re elected

• high levels of inflaiton caused

• could potentially cause demand pull/cost push inflation

cant eal with supply side policies explain

• wil only imporove cyclical unemployment (whcih is caused by not enogh AD)

• cannot improve structural unemployment (mismatch of skills vs jobs the labour is actually applying for)

• decreased productivity due to lack of quality human capital (investment lacks)

• must need supply side policies to increase productivty and economic growth

explain and evaluate net export effect (flowchart)

to increase govenrent expenditure, i.e building new infrastructure → governemtn needs to borrow a lot of cash to do so → interest rate increases → attaracts foreign investors due to the very high interst rate, they want to earn THAT INTEREST → however because they are mf foreigners, they will need to exchange their currency into OUR curency first → more ppl exchange our currency, the more expensive our currency becomes → HOWEVER becuase our currency value increases, it means our products (exports value) also increases → decrease competition → derease compeition → less exports → less AD