Taxation Flashcards
Consumer spending
This is how much consumers demand in goods and services over a period of time
When does consumer spending increase
When consumers income increase
Injections
Any spending which is not consumer spending
Type of injections
Investment
Exports
Government spending
Investment
The spending of firms on capital goods
Exports
The money spent by over sea firms and induviduals on British goods
Government spending
The spending in the economy of the public sector
Leakages
Taking money out of the circular flow of income
Types of leakages
Savings
Imports
Taxation
Savings
Money that consumers save from there income
Imports
The amount spent by UK firms and induviduals on foreign goods and services
Taxes
The amount of revenue collected from central and local government
Open economy
When there is government activity and. International trade
Economic growth
This occurs when there is an increase in total output of goods and services over a one year period
National income
The value of all goods and services produced in the economy in a year
GDP
This measures the goods and services that are produced in the UK no matter who owns the resources
Inflation
Rise in the general level of prices over a period of time
Way to achieve economic growth
Increase worker - productivity increase - higher output
Replace labour for capital
Fiscal policy
Increase government spending
Monetary theory
Reduce interest rates
Supply side policies
Improve training
How can the government attemp to create economic growth
Improve education
Building new infrastructure
Investing in new technology
Improving quality and quantity of resources
Factors that effect living standards
Employment Inflation Taxation Income Education
Unemployment
People who are able, available and actively looking for employment but cannot find a job
The claimant count
This is published each month and shows the number of people claiming Job seekers allowance
The labour force survey
Unemployed people who are actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks.
Effect of unemployment on induviduals
Reduces living standards
Reduces income while they still have major spending commitments
Worker loses skills, fitness and motivation
Social effects of unemployment
Reduced status
Increased health problems
Less confidence
Effects of unemployment on businesses (negative)
Fall in deman - fall in sales
They lose business
Effect of unemployment on buisnesses (positive)
More labour available
Less pressure to pay higher wages
Economic costs of unemplyment
Lost output
Reduced taxation revenue for government
Reduced spending in economy - jobs affected
Social costs of unemployment
Increased crime
Civil unrest
Increase burden on the health care system
The rate of inflation
Is the percentage increases in the general rise in prices over a period of time
Deflation
A sustained fall in the average price level
Disinflation
A fall in the rate of inflation
Stagflation
A situation with persistent high inflation combined with low economic growth
RPI
A measure of the average price level of goods and services in the UK
CPI
Average basket of goods and services over a period of time
CPIH
Includes housing costs
Monetarist theory
This means people are increasing their spending on good and services at a faster rate than producers can expand the supply of goods and services
(Market prices are forced to rise)
Demand pull
When total demand increases there will be an increase in the general level of prices
M&S AND Tesco
Rises faster than inflation
Cost push
Increase in the costs faced by firms, so they increase price
Prtorol price increases - farmer selling tomatoes - cost of production increases - tomato price increases
Imported inflation
A change in the exchange rate will cause prices to increase or decrease
Costs of inflation induviduals
Reduces standards of living
Value of savings go down
Unemplyment
Fiscal drag
An increase their wage which arise from inflation
= paying income tax
Govt increase tax
Reduce interests on borrowings
Costs of inflation on firms
Real value of profits decrease
Reduce willingness to invest } uncetainaty future profits
Costs of inflation government
Exports will be more expensive } less attractive to buyers
Reduces economic growth
Speculation
A period of inflation creates an expectation of inflatio which creates inflation
Benefits of low inflation
Stability - can predict future costs
Real savings
Taxation
A leakage from the circular flow
Why do we have tax
To fund govt expedeture
To deter the purchases of some goods
Direct tax
Tax paid directly to authorities
E.g inheritance tax
Indirect tax
Paid through an intrtmediary to the tax payer
E.g VAT
Progressive tax
Upper income families pay more tax
Regressive tax
Poor-middle pay more tax than the rich
Proportional tax
Everyone pays the same amount of tax
Examples of direct tax
Income tax
Cousin tax
Inheritance tax
Examples if indirect tax
VAT
Customs duties
Excise duties
Advantage of direct tax
Reduces inflationary pressure-fall in deman/spending
Ruduces income equalities - progrssive
Disadvantage of direct tax
Reduces disposible income = low standards of living
Slows down demand = increase unemplyment
Advantage of indirect tax
Easy to collect
Can be altered quickly
Disadvantage of indirect tax
Unfair - regressive
Increases prices
Capital spending
This helps create productive capacity - hospitals
Current spending
Covers day-day running costs
Transfer payment
Payment individual to firm pays with no benefit in return
Public goods
Goods that benefit everyone in soceity
