unit two Flashcards
what is a direct tax
a tax which is payed directly to the government For example, income tax
what is an indirect tax
- tax which is imposed on a transaction and paid to the government by the firm after purchasing. For example, VAT
what is a progressive tax
a tax which takes a higher percentage of tax from people with higher income. For example Income tax
what is a regressive tax
a tax which takes a higher percentage of tax from people with lower income. For example VAT
what is current spending
Spending on running costs such as workers wages (public sector) or raw muterials like, Oil, gas or wood
what is capital spending
spending on property or equipment
such as hospitals, machinery or new roads
what are transfer payments
welfare payments such as child benefits. housing benefits, state pension Jobseckers allowance
what is a budget deficit
when the government spend more that it collects in tax per year
what is a budget surplus
when the government brings in more tax than it spends annudly This can be used to recuce the national debt
what is a balanced budget
when the government bring in the same amount of tax as they spend annually
what is austerity
measures taken by the government to reduce the delicit or create/increase a budget surplus.
what is the national debt
the total amount that the public sector owes to those who have loaned it money
what is the PSNCR
the public sector net cash requirement is the amount that the government must borrow each year
what is inflation
-a rise in the general level of prices over a given period of time
- it reduces the value of money
- the government aim for 2% inflation (+/-1%)
what are the types of inflation
- cost push- when prices rise due to increased costs of production
- demand pull - when prices rise due to a rapid increase in demand (when there is too much money chasing to little goods)
how is inflation measured
- Consumer price index (CPI)
- Retail price index (RPI)
describe the CPI and RPI
CPI
- basket of goods
- items are weighted
- announced quarterly
-percentage increase from the previous year
- doesn’t include housing costs
-target of 2%
- more common
RPI
- similar to CPI
-included some housing costs
- target of 2.5%
what is the difference between real and nominal income
real - income after inflation
nominal - income before inflation is considered
what are the problems caused by inflation
- reduces real incomes
- reduces the value of savings
- goods become more expensive which decreases exports
- individuals and businesses are uncertain which discourages Spending and investments
- decline in competition
- menu costs - changing price lists.
what is deflation and what problems does it cause
- a rise in the general level of prices over a given period of time
- it increases the value of money
- makes it harder for firms to make a profit
- decreases the likelihood of investment
what is fiscal policy and who controls it
- controlled by the government
- taxation
-government spending
what is monetary policy and who controls it
- controlled by the bank of england
- interest rates
how is unemployment measured
- claimant count- number of people collecting unemployment benefits
- the labour force survey- a questionnare of 60,000 people monthly - more accurate
what does it mean to be economically inactive
people that are not working but are not seeking work
