Analysing the ext env: economic change Flashcards
Fiscal policy
tax
controlled by the government
the relationship between government expenditure and revenue raised each year
define budget deficit
the difference between gov spending and revenue over the fiscal year
What happens if gov spending EXCEEDS revenue
budget surplus
what if rev is less then expenditure
budget deficit
the two types of fiscal policy
Expansionary and Contractionary
what is the role of expansionary policy
To stimulate economic activity
what is the role of contractionary policy
To constrain demand, reduce debt and control inflation
methods of expansionary
Cut tax
increase gov spending
increase budget deficit
result of these method of expansionary
increase output and spending
decrease unemployment
increase inflation
methods of contractionary
increase tax
reduce gov spending
decrease budget deficit
results of the methods of contractionary
decrease output and spending
Monetary policy
interest rate and money supply
controlled by bank of england
the manipulation of interest rates, money supply to influence economic activity
what is the main aim of contractionary fiscal
to maintain low rates of inflation (2%)
The factors for MCP to consider
level of unemployment, house prices, level of business investment and GDP in other countries
if interest rate DECREASE
more investment
more borrowing
less saving as ppl spend more
