External Influences- Tax

Question 1

Why does the government want a low level of unemployment?

Answer 1

1) Unemployment is a waste of Human Resources. If these people were working, they could be producing goods and services
2) Unemployment is bad for society. Social problems and benefits have to be payed for, which could be spent in other areas such as health and education
3) A low level of unemployment leads to more tax revenue for the government.

Question 2

What is taxation?

Answer 2

A compulsory payment to the government.

Question 3

What are indirect taxes?

Answer 3

These are takes on expenditure/spending. They are paid to the tax authorities, not by the consumer, but indirectly by the suppliers of the goods or service.

Question 4

What are direct taxes?

Answer 4

These are taxes on income and profits, paid directly by the bearer to the tax authorities.

Question 5

What is income tax?

Answer 5

A tax taken out of a persons income. In the UK, income tax is progressive ie. those earning more pay more.

Question 6

What is national insurance?

Answer 6

This is taken out as a contribution towards the state pension and now treatment under the NHS. (Employer also contributes)

Question 7

What is Corporation Tax?

Answer 7

A tax on the profits made by companies.

Sole traders & partnerships don’t pay corporation tax. Instead national insurance.

Question 8

What is VAT?

Answer 8

Value Added Tax is a tax charged on a sale price. It is then passed from the business to the government.

Question 9

What is stamp duty?

Answer 9

A tax paid when buying property.

Question 10

What are examples of Direct Taxes?

Answer 10

National insurance
Corporation
Income Tax

Question 11

What are examples of indirect taxes?

Answer 11

VAT
Tobacco/Alcohol/Petrol
Stamp duty

Question 12

What are the 3 main purposes of taxation?

Answer 12

1) To raise large amounts of revenue for the government to spend on pubic services such as education and healthcare. (Government spending accounts for 40% of GDP)
2) To control economic activity ie. through stamp duty to control house price.
3) To influence expenditure on certain items to encourage certain behaviour and discourage others

Question 13

What are the 7 top areas of government spending?

Answer 13

Welfare
Health
Education
State pensions
Debt Interest
Defence
Criminal Justice

Question 14

What is a subsidy?

Answer 14

Payments by the government to suppliers. The effect of a subsidy is to increase supply of particular goods.

Question 15

What are the benefits of a subsidy to a business?

Answer 15

Lower costs
Decrease prices
Helps business survive during start up

Question 16

What is the monetary policy?

Answer 16

Manipulation of the level of demand in the economy using the rate of interest

Question 17

As interest rates increase what happens to the pound?

Answer 17

It strengthens.

Question 18

What is the Fiscal policy?

Answer 18

Economic policy conducted by the government through taxation and public spending.

Question 19

What is a supply side policy?

Answer 19

Supply side policies aim to improve the economies overall productive capacity.

Question 20

What are examples of supply side policies?

Answer 20

Investment in education and training
Reducing welfare benefits
Income tax cuts
Cuts in corporation tax 
Removing expensive and unnecessary business regulation
Encouraging business startups, subsidies