Fiscal Policy, Inflation And Interest Rates

Question 1

What is fiscal policy?

Answer 1

Government decisions about taxes and public sector spending

Question 2

What is income tax?

Answer 2

Deducted from employees’ wages

Based on the profits of sole traders and partnerships

Question 3

What is national insurance contribution?

Answer 3

Deducted from employees’ wages

Based on the profits of sole traders and partnerships

Question 4

What is Value Added Tax (VAT)?

Answer 4

Included in or added to the selling price of most goods and services

Question 5

What is excise and duties?

Answer 5

Included in or added to the selling prices of alcohol, cigarettes and petrol

Question 6

What is monetary policy?

Answer 6

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

Question 7

What is inflation?

Answer 7

The rate at which prices in the UK increase each year, shown as a percentage.

Question 8

Why is a high rate of inflation bad for a business?

Answer 8

• 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 9

What is interest rate?

Answer 9

The cost of borrowing money, expressed as a percentage of the amount borrowed.

Question 10

Why is a high rate of interest bad for a business?

Answer 10

• 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

Question 11

Why is a low rate of interest good for a business?

Answer 11

• 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