Terms for fiscal policy
Terms relating to fiscal policy
- Fiscal Stance : This refers to whether the government is increasing AD or decreasing AD, e.g. expansionary or tight fiscal policy
- Fine Tuning : This involves maintaining a steady rate of economic growth through using fiscal policy. However this has proved quite difficult to achieve precisely.
- Automatic fiscal stabilisers – If the economy is growing, people will automatically pay more taxes ( VAT and Income tax) and the Government will spend less on unemployment benefits. The increased T and lower G will act as a check on AD. But, in a recession the opposite will occur with tax revenue falling but increased government spending on benefits, this will help increase AD
- Discretionary fiscal stabilisers – This is a deliberate attempt by the government to affect AD and stabilise the economy, e.g. in a boom the government will increase taxes to reduce inflation.
- The multiplier effect. When an increase in injections causes a bigger final increase in Real GDP.
- Injections (J) – This is an increase of expenditure into the circular flow, it includes govt spending(G), Exports (X) and Investment (I)
- Withdrawals (W) – This is leakages from the circular flow This is household income that is not spent on the circular flow. It includes: Net savings (S) + Net Taxes (T) + Net Imports (M)
