Fiscal Policy Flashcards
Define fiscal policy>
involves making deliberate changes in either government spending or taxation
What is a budget balance?
differance between government spending and tax collected
What are the two types of tax?
- direct and indirect
What is direct tax?
a tax that cannot be passed on to another person and is usually levied in income
What is indirect tax?
a tax on spending
What is progressive taxation?
where those on higher incomes pay a higher proportion of their income in tax compared with those on lower incomes
Why is progressive tax a thing?
- helps to create a more quitable distribution of income
What is a regressive tax?
taxes that increase in relative size on lower income earners
What is an Ad valorem tax?
a tax based on a percentage of added value on top of the original price
What is a budget deficit?
occurs when govenrment spending exceeds government revenue
What is public sector borrowing?
borrowing by the government and other parts of the public sector to finance a budget deficit
What is demand side fiscal policy?
use of government spending, taxation, and the budgetary position to manage AD
What does an increase in government spending or a cut in taxation lead to?
greater budget deficit
What does the extent of expansionary fiscal policy depend on?
shape of the sras curve (how close the economy is to full ouptut)
What is supply side fiscal policy?
used to increase the economys ability to produce and supply goods, through creating incentives to work, save and invest and be entreprenuerial
What do supply side fiscal policies aim to do?
shift LRAS to the right by increasing economies potential
What is the OBR?
office for budget responsibility, independent analysis of the UKs public sector finance
What is cyclical budget deficit?
the part of the budget deficit which rises in the downswing of the economic cycle and falls with the upswing
what are some common examples of supply side fiscal policies?
- targeted government spending on improvements to the economys production capacity, shifting LRAS curve to the right. (spending on infrastructure such as transport network)
- tax incentives can be given to firms to encourage them to take on more workers or to spend more on investment
- reducing direct taxation
