Definitions

Question 1

Fiscal policy

Answer 1

Influencing the level of economic activity through the manipulation of government income and expenditure
Taxation and spending decisions of a government

Question 2

Government budget

Answer 2

Outlines government spending proposals and tax charges

Government receipts

Question 3

Current government expenditure

Answer 3

Running public services

Question 4

Capital government expenditure

Answer 4

Investment spending

Question 5

Progressive taxation

Answer 5

Tax in which the tax rate increases as the income increases

Income tax

Question 6

Proportional taxation

Answer 6

Tax where the rate of taxation is fixed

VAT

Question 7

Regressive taxation

Answer 7

Tax imposed in an manner that the tax rate decreased as the amount of taxable income increases
VAT can be regressive

Question 8

Direct taxation

Answer 8

Tax placed on income of the people and firms that cannot be avoided

Question 9

Indirect taxation

Answer 9

Tax levied on expenditure of goods and services

Question 10

Good tax

Answer 10

Equitable (a persons contribution should be in proportion with the revenue they enjoy)
Certain (know the amount being paid)
Convenient (to calculate and pay)
Economic (taxing amount that is necessary)

Question 11

Budget position/fiscal stance

Answer 11

Difference between government expenditure and revenue

Public sector net cash requirement PSNCR

Question 12

Cyclical budget position

Answer 12

Takes into account fluctuations in tax revenue and expenditure due to the economic cycle

Question 13

Cyclical budget deficit

Answer 13

During the low points of the economic cycle

Increase unemployment/decrease consumption = decrease revenue (recession)

Question 14

Cyclical budget surplus

Answer 14

During the high points of the economic cycle

Decrease unemployment/increase consumption = increase revenue

Question 15

Structural budget position

Answer 15

Governments actual fiscal position taking into account estimated budgetary consequences of the economic cycle
Provide indication of orientation of fiscal policy

Question 16

Structural budget deficit

Answer 16

The level of deficit even when the economy is at full employment

Question 17

Structural budget surplus

Answer 17

The level of surplus in an economy

Question 18

Current budget

Answer 18

Summary of net cash flows at that particular time

Question 19

Budget deficit

Answer 19

Amount the government has to borrow per year to meet its current spending plans

Question 20

National debt

Answer 20

Total amount of money the government owes to the private sector and other purchases of gilts

Question 21

Crowding in

Answer 21

A process by which a decrease in government expenditure crowds in private sector activity by lowering the cost of borrowing

Question 22

Crowding out

Answer 22

A process by which an increase in government expenditure crowds out private sector activity by raising the cost of borrowing

Question 23

Monetary policy

Answer 23

Involves altering the bank rate, money supply, exchange rate or by quantitative easing in the economy

Question 24

Bank rate

Answer 24

Rate of interest we pay in reserves held by commercial banks at the BoE

Question 25

Money supply

Answer 25

Quantity of money that is in circulation in an economy (money stock)
Assets and saving excluded

Question 26

Exchange rate

Answer 26

Price of one currency expressed in terms of another

Question 27

Quantitative easing

Answer 27

When a central bank creates new money electronically to make large purchases of assets

Question 28

Inflation targeting

Answer 28

Approach to monetary policy in which the central bank is given independence to set interest rates in order to meet inflation targets

Question 29

Symmetric inflation targeting

Answer 29

For when inflation is too high AND too low

Question 30

Asymmetric inflation targeting

Answer 30

For when inflation is too high OR too low

Question 31

Liquidity trap

Answer 31

Situation in an economy when interest rates can fall no further and monetary policy cannot influence AD

Question 32

Supply side policy SSP

Answer 32

Designed to influence aggregate supply AS

Question 33

Trade off

Answer 33

When you have a choice between two conflicting objectives because you can’t achieve all your objectives at the same time
Compromising