5.2 Fiscal policy

In this chapter you will learn how to:

• define the meaning of fiscal policy
• define the meaning of a government’s budget
• explain the difference between a government budget deficit and a government budget surplus
• explain the meaning and significance of the national debt
• explain the difference between indirect and direct taxes
• explain the difference between progressive, regressive and proportional taxes
• explain rates of tax: marginal and average rates of taxation (mrt, art)
• analyse the reasons for taxation
• explain the difference between current and capital government spending
• analyse the reasons for government spending
• explain the difference between expansionary and contractionary fiscal policy
• discuss, using AD/AS analysis, the impact of expansionary and contractionary fiscal policy on equilibrium level of national income, the level of real output, the price level and employment.