Governemnt policy - p.24-32 Flashcards
What is fiscal policy?
Use of tax and/or government spending to manage the economy.
What is monetary policy?
Use of the interest rates and the manipulation of the money supply to manage the economy.
What is an expansionary policies?
Referred to as ‘loosing’ - not strict with spending. Increase AD and cause the value of real output produced to increase.
What is contractionary policy?
Know as tightening - strict with money. Intended to reduce AD or perhaps reduce the size of increase in AD.
What is a pro-cyclical policy?
Work with cyclical tendencies. For example, prolong economic boom.
What is counter-cyclical policy?
Work against those cyclical tendencies. For example, prevent an economy slipping deeper into recession or taking heat out of an economic boom.
What is the business cycle?
Taken a photo.
What was the sole purpose of taxation?
To pay for government expenditure.
What are other reasons for taxation?
- Correct market failure
- As a macroeconomics policy tool
- Redistribute income
What was Smith’s essential features of a ‘good tax’?
1) Ability - the amount of tax paid should vary according to the individuals taxpayers ability to pay.
2) Certainty - The amount of tax to be paid, when it must be paid and how should be clean to everyone.
3) Convenience - method and timing of the payment should be convenient to taxpayer.
4) Economy - the cost of collecting ya. should be low relative to the yield.
What do economists argue a good tax also is?
1) Efficiency - leading to the least loss in allocative and economic efficiency.
2) Compatibility - tax system should be compatible with those in other countries.
3) Diversity - government revenue should come from a variety of sources.
4) Flexibility - automatically adjusts to changes in price level.
What is Smiths canon ability best seen in?
Best seen in a tax that is progressive. Means a higher proportion of high-earners’ income.
What is regressive tax?
Low-earners end up paying a higher proportion of income in tax.
What is a direct tax? Examples?
Paid directly by an individual or organisation- usually on income/ profit. Tax liability cannot be passed on to someone else. Income tax, National Insurance and Council tax.
What is an indirect tax? Examples?
A tax levied on goods and services. VAT, Business rates and Stamp duty.
