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Summary AS Fiscal Policy

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Summary and revision notes on Fiscal Policy, with AO4 evaluation points included.

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  • May 15, 2024
  • 5
  • 2018/2019
  • Summary
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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

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