Fiscal, Policy, Inflation And Interest Rates

Question 1

What’s a fiscal policy?

Answer 1

Government decisions about taxes and public sector spending

Question 2

What are examples of Taxes?

Answer 2

Income Tax - Deducted from employees’ wages. Based on the profits of sole traders and partnerships
National Insurance - Contributions Same as Income Tax
Corporation Tax - Based on the profits of limited companies (Ltd and plc)
Value Added Tax (VAT) - Included in or added to the selling price of most goods and services
Excise and duties - Included in or added to the selling prices of alcohol, cigarettes and petrol

Question 3

What’s a monetary policy?

Answer 3

The Bank of England’s decisions about interest rates, in order to support the economy and control inflation.

Question 4

What’s inflation?

Answer 4

The rate at which prices in the UK increase each year, shown as a percentage.
A high rate of inflation is bad for businesses because:
• It increases the costs of the goods that they are buying
• It causes demand to fall if consumers wages are not rising as quickly as prices

Question 5

What is interest rates?

Answer 5

The cost of borrowing money, expressed as a percentage of the amount borrowed.
A high rate of interest is bad for businesses because:
• It increases the costs of businesses with a bank overdraft or a bank loan
• It decreases demand for their products because consumers have less disposable income
A low rate of interest is good for businesses because:
• It decreases the costs of businesses with a bank overdraft or a bank loan
• It increases demand for their products because consumers have more disposable income