Macroeconomic policies and conflict of objectives Flashcards
What are:
Monetary policies
policies that use interest rates and money supply to control aggregate demand in an economy
What is:
Expansionary Monetary policy
A policy that helps the economy to grow by creating demand by decreasing interest rates or increasing the money supply
What is:
Contractionary Monetary policy
- Opposite of Expansionary
- Slows down econcomic growth
What is:
Fiscal policy
A policy implemented by the government which makes decisions about government spending, taxation and borrowing
What is:
Budget deficit/surplus
amount that the government’s spending is > or < government revenue
What are the:
Different fiscal policies
- Expansionary or contractionary
- reduced taxes and increased government spending -> expansionary
What are the different types of:
Tax
- Direct
- Indirect
- Envrionmental
- Progressive
- Proportional
- Regressive
What is:
Direct/indirect tax
- Direct tax - tax usually linked to income
- indirect tax - tax spent on goods and services. e.g. VAT and council tax
What is:
Progressive taxation
- tax which takes a higher proportion of income as it rises
- Proportional tax is tax which takes equal proportion of income regardless of income levels
Problems associated with:
continuous expansionary fiscal policy
accumulation of debt, leading to the miniumum intrest rates payments needing to be paid every year leading to increased oppurtunity cost as the money could be better paid somehwere else.
What are:
Supply side policies
government policies aimed to increase aggregate supply in the economy, which would achieve economic growth by encouraging efficiency. e.g. privatisation and competitive policies
What is:
Regressive taxation
Tax which takes a larger proportion from low income to high income earners. e.g. VAT in the UK.
How does the:
Government borrow money
Through bonds
