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Economics > Unit 4(4.1-4.5) > Flashcards

Unit 4(4.1-4.5) Flashcards

1
Q

what is the role of the government as a producer

A

produces merit goods,public goods, welfare services, public services and infrastructure

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2
Q

what is the role of the government as an employer

A

provides employment to people who work to provide the goods and services the government produces

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3
Q

roles of the government other than producer and employer

A

support agriculture and other such industries
help vulnerable groups of people
manage the macroeconomy
manage the trade in goods and services with other countries

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4
Q

what are the 4 macroeconomic aims of the government

A

economic growth
price stability
low levels of unemployment
balance of payments stability

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5
Q

what is economic growth

A

an increase in the GDP

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6
Q

what is price stability

A

low levels of inflation are targeted by the government

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7
Q

what is low levels of unemployment

A

high employment leads to high levels of output and welfare services dont need to be given out

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8
Q

what is balance of payments stability

A

imports and exports should be balanced
if too much is imported, economy can run out of foreign currency which means the currency falls and imports become more expensive
if too much is exported, currency can rise against other currencies and make exports more expensive

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9
Q

what conflicts between macroeconomic aims exist

A

full employment vs price stability
economic growth and full employment vs balance of payments stability
economic growth vs full employment

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10
Q

explain the conflict between full employment and price stability

A

low rates of unemployment creates higher incomes and demand which can cause demand pull inflation

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11
Q

explain the conflict between economic growth, full employment and balance of payments stability

A

as income rises due to economic growth and low unemployment, people can import more foreign goods which causes a deficit in the balance of payments

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12
Q

what is budget

A

a financial statement that shows the governments revenue from taxes and other incomes, and expenditure

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13
Q

why do governments spend

A

they spend on public goods and services out of a social and economic responsibility
this is because govt spending is also a part of aggregate demand

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14
Q

reasons for government spending

A

supply public and merit goods
welfare payments
achieve supply side improvements
reduce negative externalities
subsidise certain industries
redistribute income
aid economic growht

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15
Q

what are the effects of government spending

A

leads to higher demand and economic growth
can cause inflation
investment in infrastructure can lead to increased productivity and growth
increase living standards and reduce inequality
too much public investment can reduce private investment

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16
Q

what are taxes

A

the governments main source of revenue

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17
Q

why are taxes levied

A

source of govt revenue
redistributing incomes
reduce consumption and production of demerit goods
protect domestic industry
manage the economy

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18
Q

how are taxes used to redistribute incomes

A

taxes are levied on those who earn higher incomes
this money is then used to fund welfare schemes

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19
Q

how do taxes protect domestic industry

A

they are levied on foreign goods that make them more expensive and let domestic products competitive

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20
Q

how do taxes manage the economy

A

lower taxes increase aggregate demand and supply which allows for growth during high inflation
govts can increase taxes to reduce demand

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21
Q

what are direct taxes

A

taxes on income. burden of paying falls directly on the individual

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22
Q

advantages of direct taxes

A

high revenue for the government
can reduce inequalities in income and wealth

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23
Q

disadvantages of direct taxes

A

reduces work incentives
reduces enterprise incentive
many people to try escape paying, means government has to use resources to catch them

24
Q

what are indirect taxes

A

taxes on goods and services sold
indirectly takes money as tax from consumer expenditure

25
Q

advantages of indirect taxes

A

low cost of collecting taxes
expanded tax base
can discourage specific goods
easy to alter with effects more immediate

26
Q

disadvantages of indirect taxes

A

raises prices of goods, causing inflation
tax will fall heavier on poor people than rich
can cause illegal smuggling of goods

27
Q

what are progressive taxes

A

taxes which burden the rich more than the poor because rate of taxation increases as income increases

28
Q

what are regressive taxes

A

rate of taxation falls as income rises
burdens the poor more than the rich

29
Q

what are proportional taxes

A

rate of taxation remains equal as income rises or falls
burdens all equally

30
Q

what are qualities of a good tax system

A

equity
all information made available to payer
cost of collecting is less than tax itself
tax levied at convenient time
flexible
easy to understand for everybody

31
Q

impacts of taxation

A

main impact depends on what the government uses the money for
less disposable income
can reduce incentive to work or make workers work harder
producers have less incentive to produce

32
Q

what is fiscal policy

A

government policy which adjusts government spending and taxation to influence the economy

33
Q

what fiscal policy does the government employ when theres budget surplus

A

expansionary fiscal policy where government spending is raised and taxes are cut

34
Q

what is the impact of expansionary fiscal policy

A

stimulates growth and employment

35
Q

what fiscal policy does the government employ when theres budget deficit

A

contractionary fiscal policy where govt spending is cut and tax rates are increased
used to control inflation

36
Q

what is money supply

A

the total value of money available in an economy at a point of time

37
Q

what are interest rates

A

the cost of borrowing money

38
Q

impact of higher interest rates

A

higher interest rats will discourage borrowing and investments
encourages saving rather than consuming

39
Q

impact of low interest rate

A

encourage borrowing and investments
encouraging spending rather than saving

40
Q

what is monetary policy

A

governemnt policy that controls money supply
usually conducted by the central bank

41
Q

what is expansionary monetary policy

A

where the government increases money supply by cutting interest rates leading to more spending than saving

42
Q

effect of expansionary monetary policy

A

more money will be circulated
economic growth and an improvement in balance of payments
employment will rise

43
Q

what is contractionary monetary policy

A

government decreases money supply by increasing interest rates.

44
Q

effect of contractionary monetary policy

A

encourages saving rather than spending
businesses will be reluctant to invest
lower money supply, slows down economic growth and reduce inflation
can cause unemployment

45
Q

what are supply side policies

A

microeconomic policies aimed at increasing supply and productivity in an economy that leads to long term economic growth

46
Q

what is public sector investments in supply side policies

A

investments in transport and communication can facilitate faster growth

47
Q

what is improving education in supply side policies

A

improves the quality and quantity of labour to increase productivity

48
Q

how is spending on health a supply side policy

A

improves health of the population, increasing productivity

49
Q

investment on housing in supply side policies

A

geographical mobility is increased, helping increase output

50
Q

privatisation in supply side policies

A

can increase efficiency and increase output

51
Q

income tax cuts in supply side policies

A

increasing income can increase peoples willingness to work and earn more

52
Q

subsidies in supply side policies

A

financial grants given to producers to produce more and increase supply

53
Q

deregulation in in supply side policies

A

allows businesses to operate easier and produce more output

54
Q

removing trade barriers in supply side policies

A

by reducing import duties, more resources and goods are available to the economy.
can also incentivise export of goods, increasing production

55
Q

labour market reforms in supply side policies

A

making laws that reduce trade union power would reduce business costs and increase output

56
Q

advantage of supply side policies

A

the direct effect of economic growth.
reduces unemployment
trade reforms will improve balance of payments

57
Q

disadvantage of supply side policies

A

reliance on public expenditure and tax cuts means the government will run large budget deficits
deregulation and privatisation reduces government intervention and can cause market failure

Economics (9 decks)

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