Budget, Fiscal policy MM Flashcards
What are the 3 main types of policy?
1) Fiscal policy
2) Monetary policy
3) Supply-side policies
What is fiscal policy concerned with?
Direct government intervention- influencing AD with G&T
What is monetary policy?
A form of indirect intervention- carried out by the central bank, not gvnmt- uses interest rates or QE to influence AD
What affect will higher G or lower T have on AD?
Increase AD
What affect will lower G or higher T have on AD?
Reduce AD
What affect does a
decrease in interest rates have on AD?
Increase AD due to lower cost of borrowing
What are supply-side policies?
Created by gvnmt in order to influence AS
How could supply side policies increase AS?
Policies decrease costs of production
What is a budget?
A financial plan/outline of expected spending and expected revenue for the next financial period
What are the 2 types of taxes?
1) Indirect taxes
2) Direct taxes
What are indirect taxes?
Taxes on goods and services (e.g. sugar tax)
What are direct taxes?
Taxes on income- specifically to the individual or business
What are the 3 approaches to taxation?
1) Progressive
2) Proportional
3) Regressive
What is proportional taxation?
Everybody pays the same % of their income in tax
What is regressive taxation?
When higher income groups pay a lower % of their income in tax- hits poorer groups the hardest
What is progressive taxation?
Ensures higher earner pay a higher % of their income
What is the marginal rate of tax?
The rate of taxation we pay on the last £ we earn
What are regressive taxes normally?
Indirect taxes (& vice versa)
What 2 categories is government expenditure divided into?
1) Current
2) Capital
What is current government spending & an example?
Expenses of running a country from day-to-day e.g. paying wages of public sector workers
What is capital government expenditure and an example?
Expenses on improving the facilities to the public e.g. building better schools
Is capital expenditure just as important as current expenditure?
Yes
What can you do easily to capital expenditure?
Delay- in hard economic times it is often cut before the current expenditure
What is inflation?
A sustained increase in PL
What are the 3 key things in a budget?
1) G
2) T
3) Balance expected between G & T
What are the 3 possible outcomes to any budget?
1) Balanced budget
2) Budget surplus
3) Budget deficit
What is a balanced budget?
Where G=T- near on impossible
What is a governments realistic goal with a budget?
Make the gap between G & T as close to 0 as possible