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Edexcel Economics A Fiscal Policy Summary £9.99
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  3. PEARSON (PEARSON)
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  5. Economics A
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  7. Unit 4 - A global perspective

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Edexcel Economics A Fiscal Policy Summary

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Edexcel Economics A Fiscal Policy Summary with relevant diagrams, real world examples. Includes definitions, clear explanations of all concepts and evaluations.

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  • August 9, 2022
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  • 2022/2023
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YEAR 13 A LEVEL EDEXCEL ECONOMICS A FISCAL POLICY RESEARCH PROJECT
Fiscal Policy = government policy associated with taxing and spending to influence economic
activity.
Keynes economists: govt changing levels of taxes and expenditure influences AD and level of
economic activity. Therefore, can be used a ‘stabiliser’ throughout economic cycle.
Two main instruments of fiscal policy:
1. Level and composition of tax
2. Changes in govt spending
Government’s fiscal stance

Main three components of govt tax revenue:
1. Income tax (estimated £208bn in 2020)
2. VAT (£161bn)
3. National Insurance contributions (£150bn)
Main three components of govt expenditure:
1. Social protection (estimated £285bn in 2020)
2. Health (£178bn)
3. Education (£116bn)
Forecasted spending for 2020: £928bn Forecast tax revenue for 2020: £873bn (pre-Covid)
 forecasted budget deficit of £55bn. (now forecasted to be £300bn due to pandemic).
A budget deficit (T-G < 0) represents an injection into the circular flow of income and will
therefore shift the AD curve rightwards/slow down a leftward shift of the AD curve.
o Paid for by borrowing money (referred to as Public Sector Net Cash Requirement in
UK)
o Only in three periods in past 50 years has there been a budget surplus  PSNCR
negative so govt could reduce national debt (Public Sector Net Debt)
o PSND = total stock of accumulated debt of present and past govt  added to by
budget deficit, can be reduced by budget surplus.
o Balanced budget  T = G i.e. T – G = 0


MAR Day of The Budget: Chancellor of Exchequer forecasts G and T for the financial year
(6th April – 5th April next year)
NOV Autumn Statement: Chancellor updates initial Budget plans + announces govt spending
plans for the financial year.
Fiscal Policy and Aggregate Demand
Fiscal policy to shift AD = discretionary fiscal policy

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