Fiscal Policy Vocabulary

Vocabulary flashcards related to Fiscal Policy

Discretionary fiscal policy

Where the government alters the balance between government expenditure (G) and taxation (T) to influence economy activities.

Balanced Budget

A budget where the estimated government revenue just covers the planned expenditure (G), that is, government expenditure equals tax revenue (G = T).

Budget Surplus

A budget where the estimated government revenue exceeds planned government expenditure.

Budget Deficit

A budget where the estimated government revenue is less than the planned government expenditure.

Expansionary fiscal policy

Conducted through an increase in government expenditure (G) and / or reduce direct tax rates, with the intent of increasing a country’s aggregate demand (AD) and national income to bring about actual economic growth.

Contractionary fiscal policy

Means to cut government expenditure (G) and / or increase direct tax rates. These are done with the intent of reducing a country’s aggregate demand and economic activity.

Transfer payments

Payments by the government to individuals for which no good or service is given in return.

Progressive income tax

Taxes to be paid by individuals. Those in a higher income tax bracket pay a higher proportion out of the increase in income that they enjoy.

Fiscal policy with supply-side intent

Seeks to increase AS (the economy’s productive capacity), through government expenditure. It is tailored to promote long term economic growth through the supply-side effects.