Fiscal policy

Question 1

What does the government spend money on ?
What is government revenue?

Answer 1

Social protection, Education, Healthcare,defence and order, debt interest .
Amount of money government receives from taxes and other sources(eg privatization) used to finace government spending

Question 2

What is a direct tax ?
Give me 3 examples of a direct tax.?

Answer 2

A tax on income and wealth .
Income tax -Paid on all incomes eg wages, pensions
NIC(national insurance contributions )-Paid by both the employer and employee.
Corporation tax -paid by firms on all the profits they have made

Question 3

What are indirect taxes ?
Give three examples of direct taxes

Answer 3

A tax imposed on spending
VAT-A tax imposed on most goods and services at different rates .
Excise duties -Taxes on specific goods such as Tabaco,alcohol,petrol
Customs duties -Taxes on imported goods

Question 4

What is fiscal policy ?

Answer 4

Use of taxation and government spending to influence level of economic activity

Question 5

What are the five government objectives

Answer 5

Price stability
Low unemployment
economic growth
improved balance of payments
fair distribution of income

Question 6

What is the cost of fiscal policy?

Answer 6

Consumers may save rather than spend their money ,so economy doesn’t grow .
Inflation may rise if supply cannot keep up with demand
firms and consumers may spend extra money on imports balance of payments worse

Question 7

What are the benefits of fiscal policy ?

Answer 7

Reduced unemployment (government cuts taxes and increases spending in economy so more labour is demanded )
Economic growth increases(cutting taxes,increasing spending ,consumers purchase more ,investemnet increases)
Faster acting