Fiscal Policy
Government use of taxation and spending to influence economy.
Formula
Budget Balance = Government Spending − Tax Revenue
Real World
During the 2008 financial crisis, the UK government cut VAT from 17.5% to 15% as a fiscal stimulus, aiming to boost consumer spending and prevent a deeper recession.
Exam Focus
Always specify whether fiscal policy is expansionary or contractionary, then evaluate the time-lag before effects reach businesses.
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