Fiscal Policy | Notes

These revision notes cover everything you need to know about Fiscal Policy for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What is fiscal policy?

Fiscal policy is the use of government spending or taxation in order to influence aggregate demand.

What is expansionary fiscal policy?

Expansionary fiscal policy is when the government increase spending or decrease taxes, causing aggregate demand to shift to the right.

What is contractionary fiscal policy?

Expansionary fiscal policy is when the government decrease spending or increase taxes, causing aggregate demand to shift to the left.

What is a balanced budget?

A balanced budget is when government spending = tax revenue

What is a budget deficit?

A budget deficit is when government spending is more than tax revenue

What is a budget surplus?

A budget deficit is when government spending is less than tax revenue

What is national debt?

National debt is an accumulation of the budget deficit each year.

What are the possible advantages of expansionary fiscal policy?

Expansionary fiscal policy can be useful in promoting faster economic growth or reducing unemployment.

Expansionary fiscal policy can cause a higher inflation rate.

What are the possible disadvantages of expansionary fiscal policy?

Expansionary fiscal policy can cause a higher inflation rate.

Expansionary fiscal policy can cause the budget deficit to worsen.

What are the possible advantages of contractionary fiscal policy?

Contractionary fiscal policy can reduce the inflation rate.

Contractionary fiscal policy can reduce the budget deficit.