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Fiscal Policy by Mind Map: Fiscal Policy
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Fiscal Policy


Fiscal policy can stimulate AD if economy is below max output

Automatic stabilisers

In upturn less people on benefits

Less welfare spending

In upturn more people in higher tax bands

More tax revenue

Problems reagrding AD

Crowding out

Public sector investment will 'crowd out' more productive private sector companies, Royal Mail

Imperfect information

Could lead to over-stimulation

Lag effect

Could take time to have an effect

Large defecit leads to individual uncertainty

Supply side

Encourage people to look for work

Rewarding enterprise

Tax breaks for start up business (budget)

Attracting investement from overseas

Osbourne Budget

Flat rate of tax


Generates more tax revenue (laffer curve)

Increases Equity


More unequal distribution of income

No guarantee that lower taxes will lead to increased investment