Public Finances Flashcards
Direct Tax
A tax paid directly to the government such as corporation tax or income tax.
Indirect Tax
A tax paid by a producer when goods and services are purchased.
Income Tax
A tax which is paid directly by workers as a percentage of their income.
Corporation Tax
A tax which is paid directly by firms as a percentage of their profits.
Specific Tax
A fixed amount of tax paid on each unit sold.
Ad Valorem Tax
A tax charged as a percentage of the price of a good such as VAT.
Budget Deficit
When government spending is more than tax revenue.
Budget Surplus
When government spending is less than tax revenue.
Balanced Budget
When government spending is equal to tax revenue.
Explain the difference between the terms ‘budget deficit’ and ‘current account deficit’.
A budget deficit occurs when the government spends more than it receives in tax revenue.
A current account deficit occurs when current account outflows are greater than current account inflows.
National Debt
Total debt built up by government borrowing over time.
Government Bond
A method that the government uses to borrow money. They sell a bond to an investor and pay it back at a later date with interest.
Inequality
The difference in living standards between the rich and poor.
The UK government often experiences conflicts between its various macroeconomic objectives. An increase in employment may have a negative impact on which government objective?
Increased employment will increase AD and therefore leads to demand pull inflation.
The UK government often experiences conflicts between its various macroeconomic objectives. An increase in economic growth may have a negative impact on which government objective?
Economic growth will increase AD. This is likely to mean that there will be an increase in demand for imports. Economic growth often leads to inflation, which will make our exports less competitive and reduce demand from foreign consumers. Both of these will worsen the current account.
