Fiscal Policy and Supply-Side policyFiscal Policy and Supply-Side policy

• By the end of this session, you:By the end of this session, you:– Must know the government’s fiscal rules.Must know the government’s fiscal rules.– Should understand the difference between Should understand the difference between

the microeconomic effects of fiscal policy the microeconomic effects of fiscal policy and the macroeconomic dimension.and the macroeconomic dimension.

– Should understand the effects of non-Should understand the effects of non-inflationary growthinflationary growth

– Could be able to evaluate limitations of Could be able to evaluate limitations of fiscal policy and supply-side policy.fiscal policy and supply-side policy.

Can you remember this?Can you remember this?1.1. What is a balanced budget?What is a balanced budget?2.2. What is the difference between What is the difference between

expansionary and contractionary fiscal expansionary and contractionary fiscal policy?policy?

3.3. Use a diagram to show the difference Use a diagram to show the difference between a cyclical deficit and a cyclical between a cyclical deficit and a cyclical surplus.surplus.

4.4. Explain one example of an automatic Explain one example of an automatic stabiliser.stabiliser.

5.5. Choose two reasons why a budget deficit Choose two reasons why a budget deficit may pose a problem.may pose a problem.

The UK Government’s Fiscal RulesThe UK Government’s Fiscal Rules

• The Code for Fiscal Stability:The Code for Fiscal Stability:– What is the golden rule?What is the golden rule?– What is the sustainable investment rule?What is the sustainable investment rule?– What are stealth taxes?What are stealth taxes?– What is the defining feature of the EU’s What is the defining feature of the EU’s

Stability and Growth Pact?Stability and Growth Pact?

1818thth November 2011 November 2011

1818thth November 2011 November 2011

Microeconomic Effects of Fiscal Microeconomic Effects of Fiscal PolicyPolicy

• Incentives to workIncentives to work

• The pattern of demandThe pattern of demand

• Business investmentBusiness investment

Macroeconomic DimensionMacroeconomic Dimension• Discretionary or active fiscal policy?Discretionary or active fiscal policy?• Limitations of fiscal policy:Limitations of fiscal policy:

– Time lagsTime lags– Crowding outCrowding out

Fiscal Policy and Supply-Side policyFiscal Policy and Supply-Side policy

• By the end of this session, you:By the end of this session, you:– Must know the government’s fiscal rules.Must know the government’s fiscal rules.– Should understand the difference between Should understand the difference between

the microeconomic effects of fiscal policy the microeconomic effects of fiscal policy and the macroeconomic dimension.and the macroeconomic dimension.

– Should understand the effects of non-Should understand the effects of non-inflationary growthinflationary growth

– Could be able to evaluate limitations of Could be able to evaluate limitations of fiscal policy and supply-side policy.fiscal policy and supply-side policy.