RI H1 Economics Lecture Notes 7 Fiscal Policy

2019 Y6 H1 Economics Macroeconomics 44 RAFFLES INSTITUTION YEAR 6 H1 ECONOMICS 2019 1 Introduction 2 Fiscal Policy 2.1 Objectives 2.2 Rationale for Intervention 2.3 Fiscal Policy Tool – The Government Budget 2.3.1 Sources of Government Revenue 2.3.2 Government (Public Sector) Expenditure 2.4 Types of Fiscal Policy 2.4.1 Non-Discretionary Fiscal Policy (Automatic Stabilisers) 2.4.2 Discretionary Fiscal Policy 3 Effects of Discretionary Fiscal Policy on the Economy 3.1 Using Expansionary Fiscal Policy to Boost Growth and Lower Unemployment 3.1.1 How the Policy Works? 3.1.2 Factors Limiting the Effectiveness of Expansionary Fiscal Policy 3.2 Using Contractionary Fiscal Policy to Reduce Demand-Pull Inflation 3.2.1 How the Policy Works? 3.2.2 Factors Limiting the Effectiveness of Contractionary Fiscal Policy 4 Fiscal Policy in Singapore Appendices: Appendix 1: Goods and Services (GST) in Singapore Appendix 2: Economic Effects of Different Types of Taxation and Expenditure References: 1 Case, K. E. & Fair, R. C, Principal of Economics, Prentice Hall 2 Miller, R., Economics Today, 18th Edition, Addison-Wesley 3 Sloman, J., Economics, 8th Edition, Pearson 4 http://www.singaporebudget.gov.sg Lecture Objectives: After the series of lectures, students should be able to: - Distinguish between automatic stabilisers and discretionary fiscal policy. - Analyse the impact of discretionary fiscal policy on the macroeconomic aims of an economy using AD/AS analysis. - Explain the intended and unintended consequences of government policy decisions on the other economic agents (consumers and producers). - Explain the factors limiting the effectiveness of fiscal policy. - Demonstrate a good understanding of recent economic trends and developments, particularly the Singapore economy. MACROECONOMIC POLICIES FISCAL POLICY @dream

2019 Y6 H1 Economics Macroeconomics 45 1 INTRODUCTION The government can use different policy tools to influence the level of economic activity. They are either used to increase the rate of economic growth and reduce unemployment or lower the inflation rate. Such policies work to affect the aggregate demand or aggregate supply of goods and services. Fiscal and Monetary Policies affect aggregate demand and are known as demand-management policies. Conversely, supply-side policies affect the aggregate supply. 2 FISCAL POLICY 2.1 Objectives Fiscal policy is the deliberate management of government spending and taxation designed to influence the level of economic activity in order to achieve the economic goals of the government, such as: i. Macroeconomic goals i. to smooth out the ever-present fluctuations in economic activity ii. to promote economic growth iii. to push the economy closer to full employment iv. to maintain price stability ii. Microeconomic goals i. To achieve a more efficient allocation