fiscal policy (3.5)

Question 1

what is government spending

Answer 1

the total amount of money spent by the government in a given period of time

Question 2

what is direct tax

Answer 2

a tax on income or wealth

Question 3

what is government revenue

Answer 3

the source of finance for government spending

Question 4

what are the direct taxes

Answer 4

• income tax
• national insurance contributions (NIC) : paid by employers and employees
• corporation tac : tax on profits of companies
• inheritance tax : tax on transfer of wealth at the time of death
• capital gains tax : tax on profit when asset is sold

Question 5

what are the indirect taxes

Answer 5

• VAT (value added tax)
• excise duties : sin tax
• insurance premium tax
• air passenger tax
• gambling duties

Question 6

what is indirect tax

Answer 6

tax on spending

Question 7

what are local taxes

Answer 7

revenue goes to local authorities

Question 8

what are the two local taxes

Answer 8

• council tax : tax on value of home

- business rates : paid on the value of property owned by businesses

Question 9

what is a balanced government budget

Answer 9

when tax revenue is equal to government spendings

Question 10

what is a budget deficit

Answer 10

when government spending exceeds tax revenue

Question 11

what is a budget surplus

Answer 11

when government tax revenue is greater than its spending

Question 12

what is fiscal policy

Answer 12

a policy that uses government spending and taxation to affect the economy as a whole

Question 13

what are the goals of fiscal policy

Answer 13

• economic growth
• low unemployment
• price stability
• a balance in the balance of payments

Question 14

what economic goals can be obtained using budget deficit

Answer 14

• economic growth : increases spending , output , employment

- low unemployment

Question 15

what economic goals can be obtained using budget surplus

Answer 15

• price stability: reduced spending so less pressure on the price level
• a healthier balance of payments : reduced spending on imports

Question 16

what is a progressive tax

Answer 16

a tax which takes a greater percentage of tax the higher the income

Question 17

what are the consequences of redistribution measures

Answer 17

• if people can live stably on benefits they may not bother to fin work
• some workers may not seek promotion as it means they have to pay a higher tax on income
• high earners may move abroad so they get taxed less
• people may save less if the tax on interest is too high