Topic 2 - The role of the Government Flashcards
Name the 5 direct taxes
- Income
- Inheritance
- National Insurance (NIC)
- Corporation
- Capital gains
Give the main example of both indirect and direct taxes
- Indirect - VAT
- Direct - Income
Who is responsible for tax and who collects it
- The Treasury are responsible for tax and HMRC collect
What happens in contractionary fiscal policy
- Tax INCREASED and Government spending DECREASED
- This lessens demand due to less disposable income
What happens in expansionary fiscal policy
- Tax DECREASED and Government spending INCREASED
- Capital can be raised fro this through Gilts and Treasury Bills
What is meant by ‘imposing exchange controls’
- Pegging or tying domestic currency to another currency
- Allows better control of domestic currency
- Limits amount of currency imported or exported
What is ‘balance of payments’ and how can a deficit be fixed
- The balance of money between CREDIT from exports and DEBIT from imports
Can be fixed by:
- Increasing interest rates to encourage overseas investment
- Imposing tariffs and import quotas
- Imposing exchange controls
What happens if money supply exceeds value of goods and services
- INFLATION - People have more money, price of G&S goes up
3 main ways quantitative easing affects economy
- Lower borrowing costs and more spending
- More business development
- More money to be lent out by banks
What is quantitative easing and how is it achieved
- ‘Printing’ of money to increases money supply in economy
- Money spent on Bonds and Gilts from private sector companies
What is the MPC and what do they do
- Monetary Policy Committee
- Sets BoE’s interest rates for short-term - lending to banks
- Known as the ‘Bank rate’
Explain the process of how Monetary Policies can be achieved
- Banks need to borrow money
- Central bank raises/lowers interest rates
- ‘Bank rate’ reflected onto all the UK’s bank rates
- Makes borrowing more expensive
- Makes money increase or decrease in value
4 tier process of UK regulation
- Acts of Parliament
- Regulatory bodies
- Policies of financial institutions themselves
- Arbitration schemes
What are the 2 state benefits for the unemployed
- JSA
- UC
Difference between nominal and real interest rates
- Nominal - actual interest rate paid
- Real - rate paid after accounting for inflation
3 indices used to keep track of inflation
- CPI
- RPI
- AWE - Average weekly earnings
Difference between M0 and M4
- M0 - ‘narrow money’ (cash)
- M4 - ‘broad money’, Bank and Building society deposits and new money from loans and overdrafts
Difference between micro/macroeconomics
- Macro - economy of whole nation - decisions and policies affect the whole economy
- Micro - How areas within the economy affect the economy as a whole
Difference between Fiscal and Monetary Policy
- Fiscal - money spent and gained by the Government to influence/build the economy
- Monetary - Government policies that affects supply and price of money, mainly through interest rates
4 objectives of the government economic policy
- Price stability
- Low unemployment
- Balance of payments
- Economic growth
2 forms of EU legislation
- Regulations - acts that must be implemented directly into member states’ law
- Directives - outline an objective that can be achieved by member state however they see fit
