T5 Fiscal Policy Flashcards
What does fiscal policy involve
Government spending and taxation
What is government spending
Money spent by the government on the public sector and investment into the public sector
What at are the 3 types of government spending
Capiital
Current
Transfer Payments
What is capital spending (by the gov)
Investment on infrastructure
What is current spending (by the gov)
Money spent on day to day public goods and services
What is transfer payments (by the gov)
Spending on things like benefits
What is taxation
The main source of income for the government
What are the types of taxation
Direct and indirect
What is indirect taxation
Tax on expenditure
What is direct taxation
Tax on earningsand profits
What are the type of tax systems(3)
Progressive
Regressive
Proportional
What are regressive and progressive tax systems
Where the proportion of tax changes as income does
What is proportional tax system
Where the proportion of tax stays the same as income changes
What is hypothecation
When taxes are raised to avoid things,
e.g. increased tax on cigarets to disincentives smoking
What types of fiscal policy are there
Contractionary and expansionary
What is contractionary fiscal policy
Where gov spending decrease or taxes increase or both
What is expansionary fiscal policy
Where gov spending increases or taxes decrease or both
What is a budget deficit
Where tax revenue is less than spending
What is a budget surplus
Where spending is less than tax revenue
What is a cyclical budget
Where the budget changes based on fluctuations in economic activity
What is a structural budget
Where the budget results from fundemental changes in the economy
What are the fiscal policy rules(2)
The golden rule
The sustainable rule
What is the golden rule
Where the government only borrow to invest in social capital
What is the sustainable rule
What public sector debt is 40% less than GDP
What are some limitations of Fiscal Policy(4)
Time Lags
The size of the impact of AD (hard to determine impact)
Lack of accurate data
Macro Policy conflict
What are some effects of Fiscal Policy(3)
Influences demand
Influences investment
Investmnet employment rates
What are fiscal policy automatic stabilisers
Tools to infleucne GDP and counter flcutations in the eco cycle
What does the laffer curve show
The trade off and effects of tax rate on tax revenue
what will auto stabilisers do in a boom
cushion demand and ensure it doesnt rise too much
which will auto stabilisers do in a recession
aim to support demand and boost it
examples of auto stabilsiers
tax revenues rising as incomes do
benefitts and unemployment rises
specific exmaples of auto stabilsiers
progressive taxes
welfare and unemploymetn beenfits
example of auto stabilsiers in a boom
low unemployment reducing levels of benefits
examples of auto stabilsiers in a reccession
as incomes fall people fall into lower tax bands
what is fiscal auesterity
a polciy approachthat involves reducig spending and inc taxes ro reuce deficit and debt
