Fiscal policy
Fiscal policy
- Fiscal policy = the government changing spending and taxation.
- the budget: deficit (spending > tax → borrow), surplus (tax > spending), or balanced.
- Taxes by what's taxed: direct (income/profit) vs indirect (on spending).
- Taxes by rate: progressive (bigger % from the rich), regressive (hits the poor harder), proportional (same %).
Practice
A budget deficit is when government:
A deficit means spending > tax, so the government must borrow.
Practice
A progressive tax takes:
Progressive taxes take a higher % as income rises, helping redistribute income.
What it does
- boost the economy: spend more or cut taxes → demand up (more growth/jobs, but maybe inflation).
- slow the economy: spend less or raise taxes → demand down (less inflation, but maybe unemployment).
Practice
To boost growth and jobs, fiscal policy can:
More spending or lower taxes raises demand — boosting growth, but risking inflation.
You've got it
Key idea
- fiscal policy = government spending + taxation; deficit (borrow) vs surplus
- taxes: direct/indirect; progressive/regressive/proportional
- spend more / cut tax → more demand; spend less / raise tax → less demand