Fiscal Policy
- Fiscal Policy is the government changing their spending and changing taxes to help the level
of economic activity. - A change in government spending has more of an impact on GDP than the same amount of
change in taxes. - This is because the money injected into the economy by the government isn’t spent once, it
is spent over and over again. - Example: NHS – The government builds a new hospital, meaning jobs are created, which in
turn gives them money to spend on food and clothes, pay taxes to give back to the
government. - If the government just cut taxes it would raise consumption – and same may of the retained
money may be spent on imports or saved.
Questions - Use Your Note Taker To Jot Down Ideas / Calculations
If the UK was heading into a recession, the fiscal policies available to the government are:
a) decreasing taxation only.
b) decreasing public spending only.
c) decreasing public spending and reducing taxation.
d) increasing public spending and reducing taxation.
D)
Increasing public spending can be done to increase demand within the economy which in theory
should increase GDP. Reducing taxation should also in theory increase demand as consumers will
have more disposable income available to them.
- Further Study Text: Pages 115