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External analysis – economic factors
Budget deficit/
surplus
A budget deficit occurs A budget surplus occurs
when government spending when government spending
> government income. < government income.
To fund a budget deficit, the By running a surplus, the
government will need to government is taking money
borrow money, referred to as out of the economy, reducing
the Public Sector Net Cash aggregate demand. A
Requirement (PSNCR). contractionary policy.
Government is injecting Often used when an
more money into the inflationary gap exists in
economy than it is taking out. the economy. This occurs
An expansionary strategy. when aggregate demand is
higher than the country can
Often used when a supply – leading to high
deflationary gap exists in inflation.
the economy. This occurs
when the level of aggregate
demand is insufficient to lead
to full employment.
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