EISCAL
POLICY
What is fiscal policy ?
↳
the of
use
government expenditure and taxation
↳ to try to influence the level of economic activity
Expansionary (reflationary) fiscal
policy P(f)
#
↳ levels of direct
cutting or indirect taxes
↳
increasing government expenditure
HOWEVER P
--------
Pl
↳ lead to a Public Sector Spending Deficit/Budget Deficit
↳
govn't borrow more
money
to meet its
Public Sector Spending commitments
Q > Q2
-
↳ taxation revenue
money spends public
> on sector
↳ PSNCR (Public Sector Net Cash Requirement) measures the amount of borrowed
money
↳
Budget deficit annual
borrowing
Potential Problems of National Debt
1 .
Interest Payments
↳ burden
huge on the
economy
↳
produce more to fund the debt
/ lower spending
.
2
Higher taxes
3
.
Crowding of
out
private sector
investment/spending
Demographic
4
. time bomb
↳ the UK's liabilities
ageing population places greater strain on state
pension
·
5. Potential negative impact on
exchange rate
↳ value of pound may fall
↳
foreign investors
may become
worried about excessive
borrowing Q25
6. Potential of interest rates
rising
↳ markets become more reluctant to UK
to lend the
government
HOWEVER
1 AD
. ↳
helps maintain
-
> fall
prevents a in
spending
borrow
govn't
↳
.
2 can
cheaply
.
3 ↳
Austerity measures ( ↓ spending + taxes)
↓
i
L
↳ economic activity Pl
:I
↓
P2
AD2
Q22
POLICY
What is fiscal policy ?
↳
the of
use
government expenditure and taxation
↳ to try to influence the level of economic activity
Expansionary (reflationary) fiscal
policy P(f)
#
↳ levels of direct
cutting or indirect taxes
↳
increasing government expenditure
HOWEVER P
--------
Pl
↳ lead to a Public Sector Spending Deficit/Budget Deficit
↳
govn't borrow more
money
to meet its
Public Sector Spending commitments
Q > Q2
-
↳ taxation revenue
money spends public
> on sector
↳ PSNCR (Public Sector Net Cash Requirement) measures the amount of borrowed
money
↳
Budget deficit annual
borrowing
Potential Problems of National Debt
1 .
Interest Payments
↳ burden
huge on the
economy
↳
produce more to fund the debt
/ lower spending
.
2
Higher taxes
3
.
Crowding of
out
private sector
investment/spending
Demographic
4
. time bomb
↳ the UK's liabilities
ageing population places greater strain on state
pension
·
5. Potential negative impact on
exchange rate
↳ value of pound may fall
↳
foreign investors
may become
worried about excessive
borrowing Q25
6. Potential of interest rates
rising
↳ markets become more reluctant to UK
to lend the
government
HOWEVER
1 AD
. ↳
helps maintain
-
> fall
prevents a in
spending
borrow
govn't
↳
.
2 can
cheaply
.
3 ↳
Austerity measures ( ↓ spending + taxes)
↓
i
L
↳ economic activity Pl
:I
↓
P2
AD2
Q22
