4.2.5 Fiscal Policy And Supply-side Policies Flashcards
What does fiscal policy involve?
The manipulation of government spending, taxation and the budget balance
What are the types of demand-side fiscal policy?
Expansionary and contractionary
What is expansionary fiscal policy?
Policy which boosts AD by increasing government spending or lowering taxes
Can cause a budget deficit
What is a budget deficit?
government spending > revenue
What is contractionary fiscal policy?
Policy which reduces AD by reducing government spending or increasing taxes
Can cause a budget surplus
What is a budget surplus?
Government spending<revenue
What is supply-side fiscal policy used for?
To try and shift the economy’s LRAS curve to the right
What is the reason for government expenditure?
To invest in new capital products and infrastructure
To fund the running costs of public projects
What are the types of government expenditure?
Investment
Transfers
Interest payments on the national debt
What are examples of government transfers?
State pensions
Unemployment-related benefits
What is a tax?
A compulsory levy made by a government to pay for its activities
What is the reason for tax?
To finance public expenditure
How much did the government spend on health in 2019/2020?
£155bn
How much income tax did the government collect in 2019/2020?
£185bn
What is the VAT percentage rate?
20%
What is direct tax?
A tax that cannot be shifted onto someone else by the person legally liable to pay the tax
Levied on income and wealth
What is an example of a direct tax?
Income tax
Corporation tax
What is indirect tax?
A tax that can be shifted onto someone else by the person legally liable to pay the tax