part 4, 2

Question 1

Two other variables that determine investments are?

Answer 1

• interest rate (monetary policy)

- taxes (fiscal policy)

Question 2

Define fiscal policy.

Answer 2

Fiscal policy is the name of government policies which seek to influence government’s revenues (taxation) and thus governments expenditure (G)

Question 3

Define taxation.

Answer 3

Taxation is the major source of government revenues. The government has o money on it’s own: they spend money collected from taxes paid by businesses and households.

Question 4

What is the consequences of an increase in taxes?

Answer 4

A increase in taxes means a decrease in disposable income and decrease of profits. And consequently means a decrease in household consumption expenditure and a decrease in business investments, which reduces the GDP and vice versa.

Question 5

What are taxes used for?

Answer 5

Taxes are used to finance the public spending (G). Greater public spending means greater taxes and vice versa.