Yr1 Fiscal and Supply Side Policies Flashcards
PART 1
FINANCIAL POLICY
What are the 2 things controlled by fiscal policy?
- government spending
- taxation
What is the definition + example of indirect tax
A tax imposed by the government that increases the supply cost of producers
VAT
What is the definition + example of direct tax?
Tax that is levied directly on an individual or organisation
On income, wealth, or profit e.g. corporate tax
What is the definition + example of progressive tax?
A tax rate that increases (or progresses) as taxable income increases
UK tax brackets
What is the definition + example of proportional tax?
Apply at a constant tax rate to all income levels
National Insurance Contribution
What is the definition + example of a regressive tax?
A tax that remains constant and is only paid if you purchase a product/service
Taxes on alcohol or VAT
What is the definition of fiscal policy?
Involves the use of government spending and taxation to achieve the governments policy targets
NEED CASE STUDY DATA
What does a balanced budget mean?
G =T
What does a budget deficit mean?
G > T
What does a budget surplus mean?
G < T
How is fiscal policy used to create expansionary policies for the economy?
- used to incr AD
- incr gov spending
- decr taxation
How is fiscal policy used for contractionary policy objectives for the economy?
- decr AD
- decr gov spending
- incr taxation
What is discretionary fiscal policy?
Involves making discrete changes to G, T and the budget deficit to manage levels of AD
What is crowding out?
A situation in which an incr in G displaces private sector spending, with little or no incr in AD
What is the name of the diagram which shows at what level tax should be at?
Laffer Curve
What are the benefits + positives of fiscal policy?
- can direct spending to specific purposes
- can use taxation to discourage negatives externalities
- short lag time
What are the criticisms of fiscal policy?
- disincentives of tax
- side effects on public spending e.g. repayments of interest rates on debt, incr taxes to pay off debt + inequality gap in I
- poor info (lack of research)
- time lag
- impacts on other components of AD
- budget deficit
- crowding out
What does a successful fiscal policy depend on?
- size of the multiplier
- the state of the economy
- others factors in the economy
What does the laffer curve represent + what’s its shape?
Represents the relationship between tax rates and amount of tax revenue collected by governments
Parabola shaped
PART 2
SUPPLY-SIDE POLICY
What are supply side policies?
They are policies designed to make industries and markets operate more efficiency and thereby contribute to a faster rate of growth of real national output > they can improve the productive potential/ capacity of an economy leading to an increase in LRAS
What aspects of the economy do supply-side policies effect?
Incr LRAS
What are the 2 approaches of supply-side policies + their definition
- Market Led Policies
- designed to make markets work better and give the private sector more freedom
- to improve efficiency
- easier to operate within a market - Interventionist Policies
- to overcome different types of market failure
What are 8 examples of UK supply side policies?
- Privatisation of the Royal Mail
- Patent box incentive
- Share gas tax cuts
- Corporation tax
- Modern apprenticeships
- Welfare caps/reforms
- Infrastructure
- Launch of Green Investment Bank
What are the drivers of economic growth linked to supply side policies? (4)
- productivity improvements
- labour market participation
- innovation and enterprise
- capital investment
What are the 8 key UK supply side challenges?
- Productivity gap
- High youth unemployment
- Low trend growth GDP
- Rise of emerging nations
- Deep regional economic divide
- Structural trade deficit (Balance of Payments)
- Low investment and research
- Rising inequality/relative poverty
What are the two ways of illustrating supply side policies on graphs?
- Shifting the LRAS curve leftwards
- Shifting the long run aspect of the Keynesian AS curve leftwards and SR stays the same (long time to implement)
Advantages of supply side policies? (5)
- Improvements in unemployment
- Decr inflationary pressure
- Raises living standards
- Improves competitiveness
- More flexible to external demand + supply side shocks
Disadvantages of supply side policies? (4)
- Lag time
- Cost
- Inequality
- Businesses may lose out
- less profit due to competition policy
What does the impact of supply side policies depend on?
- Time lags (depend on type of policy and country involved)
- Level and growth of AD (makes business investment and innovation viable)
- Level of inequality that occurs
- Sustainability
- What other countries are also doing
