Fiscal policy and supply-side policies Flashcards
fiscal policy
involves government spending and taxation is used to influence the economy as a whole
Expansionary fiscal policy
boosting AD by increasing Government spending and lowering taxes
contractionary fiscal policy
reducing aggregate demand by reducing government spending and increasing taxes
automatic stabilisers
Fiscal policy reacting to changes in the economic cycle they reduce the problems recession causes by increasing or decreasing government spending or tax
discretionary policy
where the government deliberately change the level of spending and tax
Structural budget position
is a long term fiscal stance which is there budget position throughout the economic cycle
cyclical budget position
the governments fiscal stance in the short term
structual budget deficit
when spending is more than revenue in the long term creating national debt
horizontal equity
this means people who have similar incomes should pay the same amount of tax
vertical equity
people on higher incomes and great ability to pay tax should pay more than lower incomes
Progressive tax
when an individual taxes rises as their income rises
Regressive tax
when a individuals taxes fall as incomes rise
proportional tax
when everyone pays the same amount of tax regardless of income
consequences of Budget deficit
excessive borrowing could cause demand pull inflation
It could lead to higher interest rates discouraging investment meaning exports are less competitive
OBR
office of budget responsibility which analyses public spending, taxation and predictions of spending
consequences of large national debt
reducing lending from other countries limiting growth, less attractive to FDI due to uncertainty, excessive borrowing causes inflation and interest rates to rise causing crowding out
supply side policy
expand productive potential of an economy increasing trend rate of growth
free market supply side policies
aim to increase efficiency by removing things which interfere with the market through deregulation and privatisation
interventionist supply side policies
aimed at correcting market failure through spending on education, improving on infastructure
demand side policies
help to stabilise the economy in the short term
supply side policies tackling unemployment
create new equilibrium position in the labour market through increasing incentive for supply causing the equilibrium position to move to the right
benefits of supply side policies
unemployment falls as the economy grows
cost push inflation is reduced
increased competitiveness
