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Economics > 3.5 Fiscal policy > Flashcards

3.5 Fiscal policy Flashcards

1
Q

What is government spending

A

The total amount of money spent by the government in a given period of time

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2
Q

What things does the government spend on (5)

A
  • Social protection/ benefits
  • Healthcare
  • Education
  • Defence
  • Debt interest
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3
Q

What are the sources of government revenue

A

Taxes

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4
Q

Direct tax

A

A tax on income or wealth

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5
Q

Government revenue

A

The source of finance for government spending

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6
Q

Name 3 types of direct taxes

A
  • Income tax
  • National insuraance
  • Corporation tax
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7
Q

What is an indirect tax

A

A tax on spending, often defined as a tax on goods and services

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8
Q

Name 3 types of indirect taxes

A
  • VAT
  • Excise duties
  • Gambling duties
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9
Q

What is a balanced government budget

A

When tax revenue is equal to government spending

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10
Q

What is a budget defecit

A

When tax revenue is less than government spending

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11
Q

What is a budget surplus

A

When tax revenue is more than government spending

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12
Q

Fiscal policy

A

A policy that uses government spending and taxation to affect the economy as a whole

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13
Q

What economic objectives can fiscal policy be used to control (4)

A

Economic growth
Low unemployment
Price stability
Balance in the BoP

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14
Q

How can a budget defecit be used to achieve economic objectives

A

Increased government spending and Reduction in taxes would lead to a rise in demand and output
Overall there will be economic growth and low unemployment

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15
Q

How can a budget surplus be used to achieve economic objectives

A

Decreased government spending and Increased taxes leads to less demand and less pressure on prices so less inflation. Also less demand for imports so better BoP

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16
Q

How can fiscal policy be used to stimulate economic growth

A

Low taxes and high government spending

17
Q

How can fiscal policy be used to stimulate Low unemployment

A

Low taxes and high government spending

18
Q

How can fiscal policy be used to stimulate Price stability

A

High taxes and low government spending means less demand so less pressure on price

19
Q

How can fiscal policy be used to obtain a balanced balance of payments

A

Higher taxes and lower government spending means that theres less spending on imports so the BoP gets better

20
Q

How can direct taxes affect markets
(labour market)
(normal markets)

A

High income tax and national insurance may decrease supply of labour because they feel that it is not worth working for higher wages

If corporation taxes are decreased, the firms would be able to invest in more efficient technologies so economies of scale so supply increase and prices would decrease

21
Q

How can indirect taxes affect markets

A

Quantity demanded of products that have taxes would decrease

22
Q

How can government spending affect markets with example in building

A

If the government decides to invest more in sectors like building, the construction industry will benefit and there will be lower unemployment

23
Q

What is a positive way the government influences markets

A

They provide subsidies

24
Q

What are 3 costs of using fiscal policy to budget a defecit (decreased tax increased gov spending)

A
  • The extra disposable incomes of consumers might not be used for demanding items and people could just work less
  • Spending on imports may rise which wuld lead to larger BoP defecit
  • Inflation could rise if supply cant meet the increased demand
25
Q

What is 2 examples of opportunity cost for government spending

A
  • If they spend on education to improve LT supply, the healthcare could be neglected
  • They have to sometimes have to have a budget defecit or less government spending
26
Q

Income and wealth redistribution

A

Government action, using taxation and benefits to reduce inequalities os income and wealth

27
Q

Progressive tax

A

A tax that takes a higher percentage from higher incomes

28
Q

Regressive tax

A

A tax that takes a higher percentage from lower incomes

29
Q

What are some consequences of redistribution of income (5)

A
  • If people can live on benefits, they might not even work
  • People might be reluctant to work more as they will just be taxed
  • Some earners will move abroad to escape taxes, lowering AD
  • High direct taxes disincentivise businesses to invest
  • People will be reluctant to save if their interest is taxed

Economics (22 decks)

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