​FISCAL POLICY

HOW:
  • Explain that government spending can be classified into current expenditures, capital expenditures and transfer payments, providing examples of each.
  • Distinguish between a budget deficit, a budget surplus and a balanced budget.
  • Explain the relationship between budget deficits/surpluses and public (government) debt. 
  • Explain how changes in the level of government expenditure and/or taxes can influence the level of aggregate demand in an economy. 
  • Explain the mechanism through which expansionary fiscal policy can help an economy close a deflationary (recessionary) gap. 
  • Construct a diagram to show the potential effects of expansionary fiscal policy, outlining the importance of the shape of the AS curve.
  • Explain the mechanism through which contractionary fiscal policy can help an economy close an inflationary gap. 
  • Construct a diagram to show the potential effects of contractionary fiscal policy, outlining the importance of the shape of the AS curve. ​​
  • Explain how factors including the progressive tax system and unemployment benefits, which are influenced by the level of economic activity and national income, automatically help stabilise short-term fluctuations.
  • Evaluate the view that fiscal policy can be used to promote long-term economic growth (increases in potential output), indirectly by creating an economic environment that is favourable to private investment and directly through government spending on physical capital goods and human capital formation, as well as provision of incentives for firms to invest.
  • Evaluate the effectiveness of fiscal policy.
WHY: In most developed countries the size of government expenditure as a percentage of total national expenditure (the G component of AD) can be as much as 50% of the economy and is usually at least 30%. It is important to note therefore the importance that government expenditure has on the national economy.

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U.S. National Debt Clock : Real Time

US National Debt Clock : Real Time U.S. National Debt Clock

NEWS STORIES RELATED TO FISCAL POLICY AND THE CORONA VIRUS:

Will coronavirus mean I have to pay more tax?

Coronavirus has brought large parts of the economy to a standstill, and the government has had to spend billions to support workers, businesses and the NHS. So where is all the money going to come from? It's still very early in the crisis, so it's impossible to tell how big the final bill will be.

US to borrow record $3tn in pandemic spending

The US has said it wants to borrow a record $3tn (£2.4tn) in the second quarter, as coronavirus-related rescue packages blow up the budget. The sum is more than five times the previous quarterly record, set at the height of the 2008 financial crisis. In all of 2019, the country borrowed $1.28tn.

Why You Worked for the Government Until April 19, 2018

Tax Freedom Day ® is the first day each year that Americans work for themselves. In 2019 it arrived on April 16th. Every dollar earned before that pays for federal, state, and municipal government services. It's a way to visualize your tax burden.

Fig. 1: How is the federal budget drawn-up in the USA and why does this often result in government shut downs?

​1 Fiscal PolicyLesson Outcomes:

  • To explain that the government earns revenue primarily from taxes (direct and indirect), as well as from the sale of goods and services and the sale of state-owned (government-owned enterprises)
  • Explain that government spending can be classified into current expenditures, capital expenditures, and transfer payments and be able to provide examples of each
  • Distinguish between budget surplus, deficit and a balanced budget
Using the 2021 UK budget report  answer the questions on the worksheet, then prepare for a discussion on 'Are the UK's public finances in good shape?'
A interesting article about what happens when public finances aren't in good shape.
uk_budget_2021.docx
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The crisis in care

Over 10 months, a small team from the BBC's Panorama programme documented the realities of how the care system is working in England. Based in Somerset, they followed the stories of people needing care and of the people trying to provide it.
The human face behind mandatary social protection government expenditures in the UK.

case study: Tax Cuts and Jobs Act of 2017 (December 2017)

On December 2018 the biggest reform of the tax system since the Reagan administration in 1980's was passed by Congress.
tax_reform.pptx
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fiscal_policy__1_.pdf
File Size: 324 kb
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Evaluating FISCAL POLICY

PAPER 1 PRACTICE: 15 mARK qUESTIONS

fiscal_policy_15_mark_markscheme.pptx
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(a) Explain how automatic stabilisers help smooth out short-term fluctuations of the business cycle. [10 marks] 
(a) Using diagrams, describe how fiscal policy can be used to close recessionary and inflationary gaps. [10 marks]
(a) Explain the following statement: ‘Fiscal policy has a dual role: it can help smooth out short-term fluctuations in economic activity, and it can help promote growth in potential output.’ [10 marks] 
(b) Evaluate the effectiveness of fiscal policy. [15 marks]




the bond market and the crowding-out effect