Macroeconomic Policy Flashcards
Fiscal Policy
Setting levels of direct and indirect taxes and deciding levels of spending on government services
Direct taxation
Taxes on the income or wealth of individuals and firms with examples being income tax, national insurance contributions, corporation tax and capital gains tax
Indirect Taxation
Taxes on goods and services paid when they are sold with examples being VAT, excise duties and council tax
Environmental Taxation
Examples include landfill tax, climate change levy and aggregates levy
Fiscal deficit
When the government spends more than it recieves
Fiscal Surplus
When the government recieves more than it spends
Expansionary fiscal policy
Fiscal measures designed to stimulate demand in the economy
Contractionary fiscal policy
Fiscal measures designed to reduce demand in the economy
Fiscal drag
When inflationary pay rises drag taxpayers into higher rates of tax despite not being any better off in real terms
Base Rate
The rate of interest set by the government or central bank for lending to other banks, which in turn influences all other rates in the economy
Increase in Bank Rate
Market rate increases —> Exchange rate strengthens (hot money), Buisness investment decreases, consumer spending decreases —> aggregate demand decreases —> Demand-pull inflationary pressure decreases
Decrease in Bank Rate
Market rate decreases —> Exchange rate weakens, Buisness investment increases, consumer spending increases—> aggregate demand increases —> Demand-pull inflationary pressure increases
Quantitative easing
The buying of financial assets, such as government bonds from commercial banks, to increase the flow of money from the central bank into the economy
Supply-side policy
Government measures designed to increase aggregate supply in the economy
