Fiscal Policy, Inflation And Intrest Rates Flashcards
What is fiscal policy?
Government decisions about taxes and public sector spending.
Examples of taxes?
•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. •Value Added Tax (VAT) - included in or added to the selling prices of most goods and services. •Excise and duties - included in or added to the selling prices of cigarettes, alcohol and petrol.
What is inflation?
The rate at which prices in the UK increase each year, shown as a percentage.
Why is a high rate of inflation bad for businesses?
•It increases the costs of the goods that they’re buying. •It causes demand to fall if cusumers wages are not rising as quickly as prices.
What is interest rate?
The cost of borrowing money, expressed as a percentage of the amount borrowed.
Why is a high interest rate bad for businesses?
•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.
Why is a low interest rate good for businesses?
•It decreases the costs of businesses with a bank overdraft or bank loan. •It increases demand for their products because customers have more disposable income.
