4.2.5.1 Fiscal Policy - Key Terms

Public sector borrowing

Fiscal deficit, the difference between tax revenue and spending

Demand-side fiscal policy

Policy that decreases or increases aggregate demand to influence employment, real output and general price level

Deficit financing

When the difference between government revenue and expenditure is paid back by borrowing

Expansionary fiscal policy

When aggregate demand is stimulate to encourage economic growth

Contractionary fiscal policy

Measures to reduce government spending or monetary expansion

Discretionary fiscal policy

Policies to increase or decrease spending or taxation

Sovereign debt problem

A nation’s failure to repay its debt obligations

Supply-side fiscal policy

Measures that help to increase the availability or affordability of goods and services

National debt

Levels of government debt that has accumulated over the years

Cyclical budget deficit

Budge deficit due to the state of the economy

Cyclical budget surplus

budget surplus due to the state of the economy

Structural budget deficit

Part of the budget deficit that is not related to the state of the economy

Principle of taxation

That tax should be: certain in how its calculated, burden proportionate to pay and that collection is efficient and convenient

Progressive atxation

Tax rate increases and income increases

Regressive taxation

Tax that takes more from those with lower incomes

Proportional taxation

Tax rate remains the same, no matter the change in the level of income

Tax threshold

The ratio at which someone is taxed depending on their income

Direct tax

A tax paid directly to who imposed it - i.e. income tax

Indirect tax

A tax on goods or services rather than on an individual or company

Bank rate

The cost of borrowing and rate of return on saving

Central bank

A national bank that is given control over the distribution and production of money and credit

Dividend

Money paid to a shareholder for having a share in the firm

Financial sector

A sectionof the economy tht provides financial services to commercial and retail consumers

Monetary policy

Policies utilised by a central bank to promote sustainable economic growth

Quantitative easing

Expansionary monetary policy that increases the supply of money to promote consumer spending and lending