TOPIC 3 - FISCAL POLICIES Flashcards
WHAT IS A FISCAL POLICY?
GOVT SPENDING AND TAXATION THAT IS USUALLY SET OUT IN THE BUDGET.
WHAT IS CAPITAL EXPENDITURE?
REFERS TO LONG TERM INVESTMENT EXPENDITURE.
WHAT IS CURRENT EXPENDITURE?
RELATES TO THE GOVT’S DAY TO DAY EXPENDITURE ON GOODS AND SERVICES.
WHAT IS A TRANSFER PAYMENT?
PAYMENTS MADE BY THE STATE TO INDIVIDUALS WITHOUT THERE BEING AN EXCHANGE OF ANY GOODS OR SERVICES.
WHY DOES PUBLIC EXPENDITURE CHANGE OVER TIME?
- LEVEL OF TREND GDP
- SIZE AND AGE DISTRIBUTION OF POPULATION
- ECONOMIC CYCLE
- DEBT INTEREST
WHAT ARE THE 2 TYPES OF GOVT SPENDING?
- AUTOMATIC STABILISERS
- DISCRETIONARY
WHAT ARE AUTOMATIC STABILISERS?
HIGHER SPENDING AND LOWER TAX DURING A RECESSION AS UNEMPLOYMENT IS HIGH - DONE TO BOOST AD.
WHAT ARE DISCRETIONARY POLICIES?
GOVT ACTIVELY MAKING A CHANGE TO SPENDING OR TAXES
WHAT IS A DIRECT TAX?
TAX LEVIED ON AN INDIVIDAL OR ORGANISATION.
WHAT ARE EXAMPLES OF DIRECT TAXES?
- INCOME TAX
- CORPORATION TAX
- INHERITANCE TAX
WHAT IS AN INDIRECT TAX?
TAX LEVIED ON PURCHASING GOODS OR SERVICES.
WHAT IS AN EXAMPLE OF INDIRECT TAXES?
- VAT
- EXCISE DUTY
WHAT IS A PROGRESSIVE TAX?
MARGINAL RATE OF TAX INCREASES AS INCOME RISES CAUSING A FALL IN INEQUALITY.
WHAT ARE EXAMPLES OF A PROGRESSIVE TAX?
- INCOME TAX
- CORPORATION TAX
- NATIONAL INSURANCE
WHAT IS A REGRESSIVE TAX?
MARGINAL RATE OF TAX FALLS AS INCOME RISES CAUSING A RISE IN INEQUALITY.
WHAT ARE EXAMPLES OF REGRESSIVE TAXES?
- VAT
- COUNCIL TAX
- BUSINESS RATES
WHAT IS PROPORTIONAL TAXATION?
A CONSTANT MARGINAL RATE OF TAXATION.
WHAT IS THE MARGINAL RATE OF TAXATION?
THE TAX RATE AN INDIVIDUAL WOULD PAY ON ONE ADDITIONAL POUND OF INCOME.
WHAT IS THE KAFFER CURVE?
SOMETIMES INCREASING TAX MEANS THAT YOU GET LOWER TAX REV AS THERE IS MORE INCENTIVE TO WORK AND PEOPLE MAY EMIGRATE.
WHAT IS A BUDGET DEFICIT?
WHEN GOVT SPENDING EXCEEDS TAX REV.
WHAT IS NATIONAL DEBT?
ACCUMULATION OF BUDGET DEFICITS.
WHO DOES THE GOVT BORROW MONEY FROM?
THE GOVT BORROWS MONEY FROM FINANCIAL MARKETS - ANYONE CAN BUY GOVT BONDS.
WHAT ARE STRUCTURAL DEFICITS?
DEFICITS THAT EXIST EVEN IN A BOOM SUGGESTING THE GOVT IS SPENDING TOO MUCH.
WHAT ARE CYCLICAL DEFICITS?
CAUSED BY THE ECONOMIC CYCLE (E.G AUTOMATIC STABILISERS AND EXPANSIONARY POLICY) IN A RECESSION SO CAN BE PAID FOR IN A BOOM WHEN SPENDING IS LOWER AND TAX RECEIPTS ARE HIGHER.
WHY DO FISCAL DEFICITS AND NATIONAL DEBT MATTER?
- INTER-GENERATIONAL OPPORTUNITY COSTS
- CROWDING OUT
- INFLATION
- FUTURE BORROWING (FCREDIT RATING)
- ATTRACTING FDI
WHAT IS MEANT BY INTER-GENERATIONAL OPPORTUNITY COSTS?
BUDGET DEFICITS CREATED BY THE CURRENT GENERATION WILL HAVE TO BE PAID OFF BY BUDGET SURPLUSES FROM FUTURE GENERATIONS.
HOW DO FISCAL DEFICITS AND NATIONAL DEBT CAUSE INFLATION?
BUDGET DEFICIT INCREASES AD AS INJECTIVES ARE GREATER THAN WITHDRAWALS WHICH CAN CAUSE INFLATION AT FULL CAPACITY.
HOW DO FISCAL DEFICITS AND NATIONAL DEBT AFFECT FUTURE BORROWING?
A LARGE NATIONAL DEBT MAY MAKE IT HARDER TO BORROW ADDITIONAL FUNDS AND MIGHT LEASD TO DOWNGRADING OF A COUNTRY’S CREDIT RATING CAUSING THE IR ON BORROWING TO INCREASE.
HOW DO FISCAL DEFICITS AND NATIONAL DEBT PREVENT FDI?
MNC’S ARE ATTRACTED BY STABILITY AND HIGH NATIONAL DEBTS ARE MORE LIKELY TO LEAD TO FINANCIAL PROBLEMS.
WHAT ARE EXPANSIONARY FISCAL POLICIES?
- INCREASING GOVT SPENDING
- CUTTING TAXES
WHAT ARE DEFLATIONARY FISCAL POLICIES?
- CUTTING GOVT SPENDING
- INCREASING TAXES
WHAT ARE THE ADVANTAGES OF EXPANSIONARY FISCAL POLICIES?
- INCREASED ECONOMIC GROWTH
- DECREASED UNEMPLOYMENT
- POSITIVE MULTIPLIER EFFECT
- POSITIVE ACCELERATOR EFFECT
- CROWDING IN
WHAT ARE THE DISADVANTAGES OF EXPANSIONARY FISCAL POLICIES?
- INCREASED INFLATION
- WORSENING OF CURRENT ACCOUNT
3.. INCREASED NATIONAL DEBT - OPPORTUNITY COST
- RICARDIAN EQUIVALENCE
WHAT ARE SUPPLY SIDE POLICIES?
ACTIONS BY THE GOVT DESIGNED TO INCREASE THE PRODUCTIVE POTENTIAL OF THE ECONOMY.
WHAT ARE MARKET BASED SUPPLY SIDE POLICIES?
POLICIES IN WHICH THE GOVT WITHDRAWS ITSELF FROM RESOURCE ALLOCATION, ENLARGING THE ROLE FOR THE PRIVATE SECTOR AND FREE MARKET FORCES.
WHAT ARE EXAMPLES OF MARKET BASED POLICIES?
- REDUCING THE TAX BURDEN
- LABOUR MARKET REFORMS
- PRIVATISATION
- DEREGULATION
WHAT ARE INTERVENTIONIST SUPPLY SIDE POLICIES?
POLICIES WHERE THE GOVT INCREASES ITS ROLE IN RESOURCE ALLOCATION.
WHAT ARE EXAMPLES OF INTERVENTIONIST SUPPLY SIDE POLICIES?
- EDUCATION AND TRAINING
- INFASTRUCTURE INVESTMENT
- COMPETITION POLICIES
WHAT ARE THE ADVANTAGES OF SUPPLY SIDE POLICIES?
- INCREASED ECONOMIC GROWTH
- INCREASED PRODUCTIVITY
- REDUCED UNEMPLOYMENT
- REDUCED INFLATION
- CROWDING IN
WHAT ARE THE DISADVANTAGES OF SUPPLY SIDE POLICIES?
- TIME LAG
- OPPORTUNITY COST OF GOVT SPENDING
- BUDGET DEFICIT INCREASES LEADING TO GREATER NATIONAL DEBT
WHAT IS THE ACCELERATOR EFFECT?
CHANGE IN INCOME LEADS TO GREATER CHANGE IN CAPITAL EXPENDITURE.