26. Government polices and objectives Flashcards
What are the 4 desirable goals of the government ?
- Low inflation
- Low levels of unemployment
- Economic growth
- Balance of payments
How does decreasing government spending reduce inflation ?
- Less money in the economy to spend
- Overall spending goes down
- Less produces sold
- Prices go down
How does increasing interest rate reduce inflation?
- People borrow less money
- People have less money to spend
- Demand goes down
- Prices go down
How does increasing corporation tax reduce inflation ?
- Less money for shareholders to spend
- Demand goes down
- Prices goes down
How goes decreasing income tax increase employment ?
- More disposable income
- People buy more goods
- Increase demand = increase production
- More likely to expand business
- Creates job opportunities
Define inflation
increase in prices
Define unemployment
People who are willing/able to work and are unable to find jobs
Define Economic growth
GDP increases and more goods and services and produced.
What are the 4 steps in the business cycle ?
- Growth
- Boom
- Recession
- Slump
What is growth?
- GDP rises
- Employment rates go up
- Most business do well
What is boom?
- Inflation (prices rapidly increase)
- Too much spending
- Shortage of skilled workers
- Business uncertain about the future
What is recession ?
- GDP falls
- Unemployment
- Falling demand
- Falling profit
- Too little spending
What is slump?
- High level of unemployment
- Prices fall
- Many business fail to survive
Define fiscal policy
Change by the government in tax rates or public sector spending
Define Direct taxes
Paid directly from incomes
Define indirect taxes
Added to the prices of goods
Define disposable income
Level of income a taxpayer has after paying income tax
Example of direct tax [2]
- Income tax
- Cooperation tax
Example of indirect tax [2]
- VAT
- Import tariffs
Effects on business of hight interest rates [4]
- Higher cost on loans
- Could lead to higher exchange rates
- Business less likely to expand
- Decrease in demand for expensive products
What is supply side policies?
Used to increase the competitiveness of industries in an economy against those from other countries.
What is the monetary policy ?
Interest rates given by government or banks.
Supply side policies strategies [3]
- Encourage competition and business investment
- Privatisation
- Training and education for workers
