Macroeconomic policies Flashcards
What are the 3 main economic policies?
Fiscal
Monetary
Supply-side
What is the fiscal policy?
Taxation and spending decisions of a government
What is reflationary fiscal policy?
Wants to increase AD
What is deflationary fiscal policy?
Wants to decrease AD
What is the monetary policy?
Decisions on the rate of interest, money supply and exchange rate
What is the supply-side policy?
Gov attempts to increase productivity and shift AS curve to the right, by improving the quality and quantity of the 4 factors of production
3 components to the budget?
Expenditure
Receipts
Borrowing Requirement
What is a good tax?
Generates revenue
Works in the way intended
Avoids undesirable side effects
3 types of government expenditure?
Capital expenditure
Current expenditure
Transfer payments
What is capital expenditure?
Improving capital stock of country
What is current expenditure?
Running public services
What are transfer payments?
Benefits
3 approaches to taxation?
Progressive
Proportional
Regressive
What is progressive tax?
Taxes rise as incomes rise
What is proportional tax?
Everyone pays the same tax
What is regressive tax?
Individuals taxes fall as their incomes rise
What are the 2 types of taxes?
Direct
Indirect
What is direct tax?
Levied on income of person who pays it
What is indirect tax?
Levied on goods and services
3 types of government budget position
Budget deficit
Budget surplus
Balanced budget
What do budget deficits aim to do?
They are expansionary- increase AD
What does budget surplus’ aim to do?
They are deflationary- reduce AD
What does a balanced budget aim to do?
It is neutral fiscal- not influencing AD
Why does the gov operate budget deficits?
Cyclical- respond to economic cycle
Structural- deficit when economy at full employment