Unit 2 fiscal policy

1. Vocabulary

Exercise 1. Study the vocabulary:

fiscal policy – податково-бюджетна політика

monetary policy – грошово-кредитна політика

interest rate – відсоткова ставка

supply of money – грошова маса

impact – впливати

variables - змінна величина

Aggregate demand – сукупний попит

pattern – модель, схема

overall – загальний

budget outcome – стан бюджету

expansionary - стимулююча

contractionary - обмежувальна

еxpenditure, spending – витрати

transfer payments – трансфертні платежі

welfare benefits – соціальна допомога

siegniorage – додаткова емісія

treasury bills – скарбничі векселі

bonds – облігації

repayment – погашення (боргів), відшкодування

default on debts – несплата боргів

incur – зазнавати, брати на себе

slump – криза

II Reading

Exercise2. Read and translate:

Text A

The term fiscal policy refers to government efforts to keep the economy stable by increasing or decreasing taxes and/or government spending. The idea of using fiscal policy to combat recessions was introduced by John Maynard Keynes in the 1930s, partly as a response to the Great Depression. Fiscal policy can be contrasted with the other main type of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the supply of money. The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy:

• Aggregate demand and the level of economic activity;

• The pattern of resource allocation;

• The distribution of income.

Fiscal policy refers to the overall effect of the budget outcome on economic activity. The three possible positions of fiscal policy are neutral, expansionary, and contractionary:

• A neutral position of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). Government spending is fully funded by tax revenue and overall budget outcome has a neutral effect on the level of economic activity.

• An expansionary position of fiscal policy involves a net increase in government spending (G > T) through rises in government spending, a fall in taxation revenue, or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit.

• A contractionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue, reduced government spending, or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.

Methods of funding

Governments spend money on a wide variety of things, from the military and police to services like education and healthcare, as well as transfer payments such as welfare benefits.

This expenditure can be funded in a number of different ways:

• Taxation

• Siegniorage, the benefit from printing money

• Borrowing money from the population, resulting in a fiscal deficit

• Consumption of fiscal reserves.

• Sale of fixed assets (e.g., land).