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Economics > Fiscal Policy > Flashcards

Fiscal Policy Flashcards

1
Q

What is fiscal policy?

A

Policy by the government to influence the economy

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2
Q

What can fiscal policy affect?

A

Aggregate demand and aggregate supply

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3
Q

What are the aims of fiscal policy?

A

To prevent national income remaining persistently bellow the full employment level, to smooth out cyclical fluctuations in AD and to solve market failures

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4
Q

What is government spending?

A

An injection

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5
Q

What does an increase in government spending cause?

A

It shifts the injections upwards and increase equilibrium output

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6
Q

What types of governments are there?

A

Local and central government

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7
Q

What is local government responsible for?

A

Regional services

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8
Q

What is central government responsible for?

A

National provision of some products

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9
Q

What are examples of government spending?

A

Defence, social security, education, NHS and repayments on previous borrowing

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10
Q

What is government expenditure?

A

It is an injection that affects the position of the AD curve

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11
Q

What is government spending financed by?

A

Tax revenue and borrowing

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12
Q

What are direct taxes?

A

Placed on households’ incomes and firms’ profits

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13
Q

What are examples of direct taxes?

A

Business rates, income, corporation, national insure, capital gains, inheritance and council tax

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14
Q

What are indirect taxes?

A

Paid when items are bought

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15
Q

What are example of indirect taxes?

A

Excise duties, licences, customs duties and landfill tax

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16
Q

What are the different types of taxation systems?

A

Progressive, regressive and proportional

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17
Q

What is progressive tax?

A

Average rate of tax increases as people earn more money

18
Q

What is regressive tax?

A

Average rate of tax falls as people earn more money

19
Q

What is proportional tax?

A

Average rate of tax is constant whatever people earn

20
Q

How do we calculate the average rate of tax?

A

Average rate of tax = (tax paid / income) x 100%

21
Q

What is marginal rate of tax?

A

Tax paid on the last pound earned

22
Q

How do we calculate the marginal rate of tax?

A

Change in tax paid / change in income

23
Q

What makes an effective taxation system?

A

Understandable, cost-effective, difficult to avoid paying, non-distortionary and does not have a disincentive effect

24
Q

What is tax avoidance?

A

When individuals or firms take legal steps to avoid paying tax

25
Q

What is tax evasion?

A

Illegally avoiding tax

26
Q

What is a budget deficit?

A

When governments expenditure is greater than governments receipts

27
Q

What is a budget surplus?

A

When governments receipts are greater than governments expenditure

28
Q

What is national debt?

A

The outstanding government debt

29
Q

What is the public sector?

A

Central government + local government + public corporations

30
Q

What is the public sector net borrowing (PSNB)?

A

The amount the public sector needs to borrow to finance the combined deficit

31
Q

What is public-sector debt?

A

Accumulated total of past PSNB’s

32
Q

What are the instruments of fiscal policy?

A

Automatic stabilisers and discretionary fiscal policy

33
Q

What are automatic stabilisers?

A

Mechanisms in the economy that reduce the response of national income to shocks

34
Q

What are the advantages of automatic stabilisers?

A

Reduce fluctuations in national income and are quick, not dependent on forecasting accuracy

35
Q

What are the disadvantages of automatic stabilisers?

A

Fiscal drag and not preventative

36
Q

What is discretionary fiscal policy?

A

Active policy by the government to stabilise output

37
Q

What changes occur with discretionary fiscal policy?

A

It changes the level of government expenditure and change the marginal tax propensity

38
Q

How does discretionary fiscal policy change the marginal tax propensity?

A

Changing rates of existing taxes, changing benefits, introducing new taxes/benefits and withdrawing taxes/benefits

39
Q

What is the effectiveness of discretionary fiscal policy?

A

Time lags, uncertainty, induced effects on autonomous demand and crowding out

40
Q

What is supply-side fiscal policy?

A

It influences AS in the economy through regulation in the labour market and goods market

Economics (24 decks)

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