topic 3 key terms

Question 2

public sector borrowing

Answer 2

Amount of money borrowed by the government to finance its expenditures when its revenue falls short

Question 3

Demand side fiscal policy

Answer 3

Use to increase or decrease the level of aggregate demand and shift the AD curve to the right or left through changes in government spending, taxation and the budget balance

Question 4

Deficit financing

Answer 4

Deliberately running a budget deficit and then borrowing to finance the deficit

Question 5

Expansionary fiscal policy

Answer 5

Uses fiscal policy to increase aggregate demand and to shift the A D curve to the rightBy increasing governBy increasing government spending and decreasing taxation

Question 6

Contractionary fiscal policy

Answer 6

Uses fiscal policy to decrease aggregate demand and shift the aggregate demand curve to the lefBy decreasingBy decreasing government spending and increasing taxationt

Question 7

Discretionary fiscal policy

Answer 7

Involves making discrete changes to government spending and taxation and the budget deficit to manage their level of aggregate demand

Question 8

Supply side fiscal policy

Answer 8

Used to increase the economy’s ability to produce and supply goods through creating incentives to work, save, invest and be entrepreneurial. Interventionists supply side fiscal policies such as financing of retraining Schemes for unemployed workers are also designed to improve supply side performance

Question 9

National debt

Answer 9

The stock of all past government borrowing that has not been paid back

Question 10

Cyclical budget deficit

Answer 10

Where the balance on the government’s finances moves into deficit largely because of effects of the economic cycle on tax and spending plans

Question 11

Cyclical budget surplus*

Answer 11

The balance on the government finances moves into surplus largely because of the effects of the economic cycle on tax and spending plans

Question 12

Structural budget deficit

Answer 12

When the government’s finances remain in deficit even if the effects of economic growth are removed

Question 13

Progressive taxation

Answer 13

were those on higher incomes pay a high proportion of that income in tax compared to those on lower incomes

Question 14

Principle of taxation

Answer 14

Also known as canon of taxation a criterion used for judging whether a tax is good or bad

Question 15

Regressive taxation

Answer 15

Taxes that increase in relative size on lower income earners

Question 16

Proportional taxation

Answer 16

When the proportion of income paid in the tax stays the same as income increases

Question 17

Tax threshold

Answer 17

Income level at which an individual or or household becomes liable to pay income tax

Question 18

Direct tax

Answer 18

A tax that cannot be passed on to another person and is usually levied on incomes

Question 19

Indirect tax

Answer 19

A tax that can be shifted by the person legally liable to pay the tax on to someone else for example through raising the price of a good being sold to by the taxpayer. indirect taxes are Levi on spending