Fiscal Policy MCQ 3

Government Current Budget

• Government current revenue: continuous income collected by the government, e.g. VAT
• Government current expenditure: continuous spending by the government, e.g. social welfare
• Current budget surplus: when current revenue exceeds current expenditure

Implications of Current Budget Surplus

• Reduces government debt
• Lowers economic growth as the government withdraws more money than it injects
• Helps reduce inflation and dampen demand
• Allows for a 'rainy day fund' to be set aside

Current Budget Deficit

• Current revenue is less than current expenditure
• National debt rises, which must be paid back with interest
• Economic growth increases as the government injects more money than it withdraws
• Can cause the economy to overheat and lead to inflation
• Makes the economy more vulnerable to economic shocks with no surplus set aside

Reducing Current Budget Deficit (CBD)

Increasing Current Revenue

• Introduce new taxes, such as USC
• Increase VAT rates, e.g. from 21% to 23%
• Raise revenue through taxes, like DIRT, to encourage spending over saving

Decreasing Current Expenditure

• Cut social welfare payments
• Reduce services, e.g. closure of Gardaí stations
• Implement a recruitment ban to reduce public sector numbers

Implications of Reducing CBD

• Growth of the hidden economy
• Reduced quality of state services due to fewer workers
• Increased emigration due to high income tax
• Increased inequality

Learn about government current revenue, expenditure, and the implications of a current budget surplus, including its effects on debt, economic growth, and inflation.