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ECONOMICS - YEAR 1 > TOPIC 3 - FISCAL POLICIES > Flashcards

TOPIC 3 - FISCAL POLICIES Flashcards

1
Q

WHAT IS A FISCAL POLICY?

A

GOVT SPENDING AND TAXATION THAT IS USUALLY SET OUT IN THE BUDGET.

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2
Q

WHAT IS CAPITAL EXPENDITURE?

A

REFERS TO LONG TERM INVESTMENT EXPENDITURE.

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3
Q

WHAT IS CURRENT EXPENDITURE?

A

RELATES TO THE GOVT’S DAY TO DAY EXPENDITURE ON GOODS AND SERVICES.

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4
Q

WHAT IS A TRANSFER PAYMENT?

A

PAYMENTS MADE BY THE STATE TO INDIVIDUALS WITHOUT THERE BEING AN EXCHANGE OF ANY GOODS OR SERVICES.

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5
Q

WHY DOES PUBLIC EXPENDITURE CHANGE OVER TIME?

A
  1. LEVEL OF TREND GDP
  2. SIZE AND AGE DISTRIBUTION OF POPULATION
  3. ECONOMIC CYCLE
  4. DEBT INTEREST
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6
Q

WHAT ARE THE 2 TYPES OF GOVT SPENDING?

A
  1. AUTOMATIC STABILISERS
  2. DISCRETIONARY
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7
Q

WHAT ARE AUTOMATIC STABILISERS?

A

HIGHER SPENDING AND LOWER TAX DURING A RECESSION AS UNEMPLOYMENT IS HIGH - DONE TO BOOST AD.

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8
Q

WHAT ARE DISCRETIONARY POLICIES?

A

GOVT ACTIVELY MAKING A CHANGE TO SPENDING OR TAXES

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9
Q

WHAT IS A DIRECT TAX?

A

TAX LEVIED ON AN INDIVIDAL OR ORGANISATION.

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9
Q

WHAT ARE EXAMPLES OF DIRECT TAXES?

A
  1. INCOME TAX
  2. CORPORATION TAX
  3. INHERITANCE TAX
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10
Q

WHAT IS AN INDIRECT TAX?

A

TAX LEVIED ON PURCHASING GOODS OR SERVICES.

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11
Q

WHAT IS AN EXAMPLE OF INDIRECT TAXES?

A
  1. VAT
  2. EXCISE DUTY
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12
Q

WHAT IS A PROGRESSIVE TAX?

A

MARGINAL RATE OF TAX INCREASES AS INCOME RISES CAUSING A FALL IN INEQUALITY.

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13
Q

WHAT ARE EXAMPLES OF A PROGRESSIVE TAX?

A
  1. INCOME TAX
  2. CORPORATION TAX
  3. NATIONAL INSURANCE
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14
Q

WHAT IS A REGRESSIVE TAX?

A

MARGINAL RATE OF TAX FALLS AS INCOME RISES CAUSING A RISE IN INEQUALITY.

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15
Q

WHAT ARE EXAMPLES OF REGRESSIVE TAXES?

A
  1. VAT
  2. COUNCIL TAX
  3. BUSINESS RATES
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16
Q

WHAT IS PROPORTIONAL TAXATION?

A

A CONSTANT MARGINAL RATE OF TAXATION.

17
Q

WHAT IS THE MARGINAL RATE OF TAXATION?

A

THE TAX RATE AN INDIVIDUAL WOULD PAY ON ONE ADDITIONAL POUND OF INCOME.

18
Q

WHAT IS THE KAFFER CURVE?

A

SOMETIMES INCREASING TAX MEANS THAT YOU GET LOWER TAX REV AS THERE IS MORE INCENTIVE TO WORK AND PEOPLE MAY EMIGRATE.

19
Q

WHAT IS A BUDGET DEFICIT?

A

WHEN GOVT SPENDING EXCEEDS TAX REV.

20
Q

WHAT IS NATIONAL DEBT?

A

ACCUMULATION OF BUDGET DEFICITS.

21
Q

WHO DOES THE GOVT BORROW MONEY FROM?

A

THE GOVT BORROWS MONEY FROM FINANCIAL MARKETS - ANYONE CAN BUY GOVT BONDS.

22
Q

WHAT ARE STRUCTURAL DEFICITS?

A

DEFICITS THAT EXIST EVEN IN A BOOM SUGGESTING THE GOVT IS SPENDING TOO MUCH.

23
Q

WHAT ARE CYCLICAL DEFICITS?

A

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.

24
Q

WHY DO FISCAL DEFICITS AND NATIONAL DEBT MATTER?

A
  1. INTER-GENERATIONAL OPPORTUNITY COSTS
  2. CROWDING OUT
  3. INFLATION
  4. FUTURE BORROWING (FCREDIT RATING)
  5. ATTRACTING FDI
25
Q

WHAT IS MEANT BY INTER-GENERATIONAL OPPORTUNITY COSTS?

A

BUDGET DEFICITS CREATED BY THE CURRENT GENERATION WILL HAVE TO BE PAID OFF BY BUDGET SURPLUSES FROM FUTURE GENERATIONS.

26
Q

HOW DO FISCAL DEFICITS AND NATIONAL DEBT CAUSE INFLATION?

A

BUDGET DEFICIT INCREASES AD AS INJECTIVES ARE GREATER THAN WITHDRAWALS WHICH CAN CAUSE INFLATION AT FULL CAPACITY.

27
Q

HOW DO FISCAL DEFICITS AND NATIONAL DEBT AFFECT FUTURE BORROWING?

A

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.

28
Q

HOW DO FISCAL DEFICITS AND NATIONAL DEBT PREVENT FDI?

A

MNC’S ARE ATTRACTED BY STABILITY AND HIGH NATIONAL DEBTS ARE MORE LIKELY TO LEAD TO FINANCIAL PROBLEMS.

29
Q

WHAT ARE EXPANSIONARY FISCAL POLICIES?

A
  1. INCREASING GOVT SPENDING
  2. CUTTING TAXES
30
Q

WHAT ARE DEFLATIONARY FISCAL POLICIES?

A
  1. CUTTING GOVT SPENDING
  2. INCREASING TAXES
31
Q

WHAT ARE THE ADVANTAGES OF EXPANSIONARY FISCAL POLICIES?

A
  1. INCREASED ECONOMIC GROWTH
  2. DECREASED UNEMPLOYMENT
  3. POSITIVE MULTIPLIER EFFECT
  4. POSITIVE ACCELERATOR EFFECT
  5. CROWDING IN
32
Q

WHAT ARE THE DISADVANTAGES OF EXPANSIONARY FISCAL POLICIES?

A
  1. INCREASED INFLATION
  2. WORSENING OF CURRENT ACCOUNT
    3.. INCREASED NATIONAL DEBT
  3. OPPORTUNITY COST
  4. RICARDIAN EQUIVALENCE
33
Q

WHAT ARE SUPPLY SIDE POLICIES?

A

ACTIONS BY THE GOVT DESIGNED TO INCREASE THE PRODUCTIVE POTENTIAL OF THE ECONOMY.

34
Q

WHAT ARE MARKET BASED SUPPLY SIDE POLICIES?

A

POLICIES IN WHICH THE GOVT WITHDRAWS ITSELF FROM RESOURCE ALLOCATION, ENLARGING THE ROLE FOR THE PRIVATE SECTOR AND FREE MARKET FORCES.

35
Q

WHAT ARE EXAMPLES OF MARKET BASED POLICIES?

A
  1. REDUCING THE TAX BURDEN
  2. LABOUR MARKET REFORMS
  3. PRIVATISATION
  4. DEREGULATION
36
Q

WHAT ARE INTERVENTIONIST SUPPLY SIDE POLICIES?

A

POLICIES WHERE THE GOVT INCREASES ITS ROLE IN RESOURCE ALLOCATION.

37
Q

WHAT ARE EXAMPLES OF INTERVENTIONIST SUPPLY SIDE POLICIES?

A
  1. EDUCATION AND TRAINING
  2. INFASTRUCTURE INVESTMENT
  3. COMPETITION POLICIES
38
Q

WHAT ARE THE ADVANTAGES OF SUPPLY SIDE POLICIES?

A
  1. INCREASED ECONOMIC GROWTH
  2. INCREASED PRODUCTIVITY
  3. REDUCED UNEMPLOYMENT
  4. REDUCED INFLATION
  5. CROWDING IN
39
Q

WHAT ARE THE DISADVANTAGES OF SUPPLY SIDE POLICIES?

A
  1. TIME LAG
  2. OPPORTUNITY COST OF GOVT SPENDING
  3. BUDGET DEFICIT INCREASES LEADING TO GREATER NATIONAL DEBT
40
Q
A

ECONOMICS - YEAR 1 (7 decks)

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