2E Flashcards
What are fiscal policies
Use of government spending and taxation to control the macroeconomy and achieve the key macroeconomic objectives. It is a demand-side policy tool- primarily affecting AD
What is the government budget
A publication setting out the governments plans to support economic growth through significant investment, skills and innovation.
What is a budget surplus
G<T
What is a budget deficit
G>T
What do expansionary policies achieve
Increase AD
What do contractionary polices achieve
Decrease AD
What are progressive taxes
Tax rises as income rises. e.g income tax
What are regressive taxes
Tax rate decreases as income rises e.g tobacco and alcohol.
It depends on factors for for fiscal policies
-It depends on whether changes have the assumed affect (e.g Do income tax cuts always increase consumption)
-It depends on the size of the output gap
-It depends on the size of the multiplier
-Some views of G are difficult to reduce e.g Health
-Some factors are outside the government’s control. e.g the ageing population places a greater burden on the health service.
What are monetary policies
The use of interest rates, exchange rates and money supply to control the macro-economy and achieve the macro objectives.
What are interest rates
IS the cost of borrowing money or the reward from saving money. IR has become a key policy instrument to manipulate the economy.
How does decreased exports affect AD
AD decreases
How does increased exports affect AD
AD increases
How does the MPC work
8 members meet plus the governor of the bank of England.
Primary aim is to control inflation.
Second aim is to support government economic policy and targets for growth and employment
Factors to consider when setting IR
State of demand- is demand too strong
Housing market
Labour market
Inflation from overs3eas
trends in exchange rate
