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Economics Edexcel iGCSE > Economic Policy and Policy Instruments > Flashcards

Economic Policy and Policy Instruments Flashcards

1
Q

What is an economic policy?

A

Different ranges of action a government may take when controlling the economy

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2
Q

Name 3 economic policies

A
  • Monetary Policy
  • Fiscal Policy
  • Supply Side Policies
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3
Q

What is nationalisation?

A

When government takes ownership of a company

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4
Q

What is policy instruments?

A

Tools a government uses to help achieve its macroeconomic objective

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5
Q

What is government expenditure?

A

Amount of money a government spends on goods and services, to improve an economy

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6
Q

What are fiscal policies?

A

Decisions about government spending, taxation and levels of borrowing which affect aggregate demand in an economy

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7
Q

What is contractionary fiscal policy?

A

Government is reducing AD by increasing taxes or cutting expenditure

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8
Q

Illustrate contractionary fiscal policy on a curve

A
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9
Q

When is contractionary fiscal policy used?

A

Used when AD is too high

e.g. during a boom, economy at near full employment, output & inflation rising

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10
Q

What is expansionary fiscal policy?

A

Government increases AD by reducing taxes or increasing expenditure

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11
Q

Illustrate expansionary fiscal policy on a curve

A
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12
Q

When is expansionary fiscal policy used?

A

Used when there’s not enough AD in the economy

e.g. during a recession, when output low & unemployment is high

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13
Q

Name 5 uses of government expenditure

A
  • Defence
  • Education
  • Emergency services
  • Foreign aid
  • Social decurity
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14
Q

What is taxation?

A

Money collected by the government to improve the economy

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15
Q

What is direct tax?

A

Tax directly from earnings and profits

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16
Q

Name 5 types of direct tax

A
  • Income tax
  • Corporation tax
  • Capital gain tax
  • National insurance tax
  • Inheritance tax
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17
Q

What is income tax?

A

On amount earned by an individual

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18
Q

What is corporation tax?

A

Taken from profits made by limited companies

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19
Q

What is national insurance tax?

A

Income tax that’s used for pensions, benefits & NHS

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20
Q

What is inheritance tax?

A

On money that’s inherited from people that die

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21
Q

What is capital gain tax?

A

On financial gains made when selling assets at a profit

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22
Q

What are examples of assets? (3x)

A

shares, houses, cars

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23
Q

What is indirect tax?

A

Tax on expenditure

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24
Q

Name 7 types of indirect tax

A
  • Value added tax (VAT)
  • Vehicle excise duty
  • Duties
  • Business rates
  • Custom duties
  • Stamp duties
  • Council tax
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25
Q

What is VAT on?

A

On goods and services sold in economy

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26
Q

What are duties?

A

Heavy taxes on select range of goods

e.g. petrol, tobacco, alcohol

27
Q

What are business rates taxes?

A

Collected by local authorities and contribute to provision of local community services

28
Q

What are custom duties?

A

Levied on imports

29
Q

What is vehicle excise duty?

A

Paid by owners of vehicles every year

30
Q

What are stamp duties?

A

Paid when buying certain assets

E.g. houses and shares

31
Q

What is council tax?

A

Paid to local author to help pay for local services

e.g. on houses

32
Q

What is environmental tax?

A

Taxes designed to protect the environment

33
Q

Name 3 types of environmental tax

A
  • Landfill tax
  • Climate change levy
  • Aggregates levy
34
Q

What is landfill tax?

A

Imposed on disposal of waste in landfill sites

35
Q

What is climate change levy?

A

To help UK meet its commitment to reduce greenhouse gases

e.g. suppliers of coal

36
Q

What are aggregates levy?

A

Tax on sand, gravel and rock that is dug from ground

37
Q

What is monetary policy?

A

A government uses interest rates and the money supply to influence aggregate demand in an economy

38
Q

What are interest rates?

A

Costs of borrowing money & reward of saving money

39
Q

When interest rates fall, how does this affect consumption?

A
  • Interest rates fall = demand for loans will increase
  • Consumers borrow more money ← it’s cheaper = increasing AD
40
Q

When interest rates fall, how does this affect investment?

A
  • Interest rates are low = firms will borrow more money ← loans will pay less interest
  • Used money to invest into their business = increases AD
41
Q

When interest rates fall, how does this affect exports and Imports?

A
  • Link between interest rate & exchange rate
    • Interest rates are low = exchange rates are low
    • Means price of exports are cheaper - AD increases
    • & imports decrease
42
Q

What is tight monetary policy?

A

Higher interest rates & lower money supply = reduce AD

43
Q

When is tight monetary policy used?

A
  • During inflation
44
Q

What is loose monetary policy?

A

Lower interest rates & growing money supply = increase AD

45
Q

When is loose monetary policy used? (3x)

A
  • To reduce unemployment
  • Promote economic growth (helps to move out of recession)
  • Get out of current account defict
46
Q

What are supply side policies?

A

Government measures designed to increase aggregate supply in the economy

47
Q

Name 3 things supply side policies aim to do

A
  • Improve labour flexibility
  • Promote competition (through privatisation, deregulation and helping small firms)
  • Increase both public and private sector investment
48
Q

Labour Market: How can AS increase?

A

If labour productivity is higher

49
Q

Name 4 ways you can increasing labour productivity

A
  • Improve Flexibility
  • Restore Incentives
  • Improve Labour Quality
  • Increase the Workforce
50
Q

Explain how you can improve the flexibility of labour

A

New laws can weaken trade unions & workers can adopt more flexible working practices

51
Q

Explain how restoring incentives can increase labour productivity (3x)

A

You can reduce:

  • Corporate Tax
    • More profits = more willing to supply
  • Income Tax
    • More motivated to work
  • Increase minimum wage
    • Increasing unemployment or incentive to work
52
Q

Explain how you can improve labour quality (2x)

A
  • Government can invest in education with more vocational courses
  • More business investment in training
53
Q

Name 2 way we can increase the workforce

A
  • Encourage immigration
  • Raise the retirement age
54
Q

Name 4 ways we can help improve efficiency in product markets

A
  • Privatisation
  • Deregulation
  • Providng Subsides
  • Helping Small Firms
55
Q

What is privatisation?

A

When the government transfers a business from public to the private sector

56
Q

Explain how privatisation improve efficiency in product markets (2x)

A
  • Breaks up state monopolies & promotes competition which should improve efficiency, raise quality and lower prices
  • Encourages more AS ∵ more private firms
    • = supply more goods and supplies (want to make profit)
57
Q

What is “Red Tape”?

A

Legal paperwork a lot of business have to do to start up

58
Q

Explain how deregulation can help improve efficiency in product markets

A

Many governments have removed rules/regulations that discourage business activity and prevent competition = increases AS

59
Q

Explain how providng subsides can increase AS

A

Helps business lower the cost of production = can produce more at a lower cost = increasing AS

60
Q

Explain how governments can help small firms (3x)

A
  • Lowering taxes on small firms
  • Setting up advisory centres
  • Reducing ‘red tape’
61
Q

Capital Markets: AS will increase if there’s more ________ in economy

A

investment

62
Q

Explain how the government can increase AS in the public sector

A

Government can invest more in infrastructure = increases transport of goods and services

63
Q

Describe how investment can be encouraged in the private sector (3x)

A
  • Economy = stable
  • Interests rates are low
  • Finaical incentives exists for potential investors

Economics Edexcel iGCSE (8 decks)

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