4.5 Role of the state in the macroeconomy Flashcards
(44 cards)
4.5.1A)
What is current spending
maintance of piblic servies and public sector
4.5.1A)
What is capital spending
Infustructre project, Capital expenditure = Spending on big, long-lasting projects or assets.
create or improve long-term assets
4.5.1A)
What is transfer payments
payments which there are no corsponding output where money take and given to others, example welfare.
4.5.1B)
Reasons for the changing size and composition of public expenditure in a global context
Lower the avg income of a country the lower the % of GDP spent by govt
lower tax revenue
high income countries expect more from their govt
4.5.1C)
How does differing levels of public expenditure
as a proportion of GDP effect
productivity and growth
-Govt enjoy economies of scale when it provides goods improving productivity
-they provide infustructre which is necessary for economies LR eff
-edu creats human capital R&D not done by priv sector
-govt creats mulitplier effect
4.5.1C)
How does differing levels of public expenditure
as a proportion of GDP effect
living standards
-govt spending improves std of living. govt produce public goods
- they reduce abs poverty
4.5.1C)
How does differing levels of public expenditure
as a proportion of GDP effect
crowding out
in order to spend money above tax income the govt has to borrow. ^ dd for money, ^ IR which discourages investment
4.5.1C)
How does differing levels of public expenditure
as a proportion of GDP effect
level of tax
Where govt spending is high tax must be high.
^ tax is a disincentive
4.5.1C)
How does differing levels of public expenditure
as a proportion of GDP effect
equality
Spending should increase eq.
it leads to redistribution of wealth, provides min std of living.
ensures basic goods
4.5.2 A)
What is progressive tax
Higher income, hjgher marginal ratre of tax
4.5.2 A)
regressive tax
Proportion of tax fAll as income rises example vat
4.5.2 A)
proportional tax
proporttonal is the same no matter income
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
High tax rate discourages work. people will move away.
creates povt trap.
however people may see it as an incentive to work as they have less money
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
tax revenues
the Laffer curve
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
income distribution
progessive ^ equality, regressive v
inheritance tax
however tax needs to be spent on benifits
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
real output and employment
^indirect tax v disposable v spending v ad
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
price lvl
tax will impact prices which effects ss
indirect tax may cause cost push inflation
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
the trade balance
v income, v consumption, v imports
LR reduce comp, v exports
4.5.2 B)
effects of changes in tax rates on other variable
incentives to work
FDI
low tax on profit and investment encourages investment count will lower tax to ecourage investment
4.5.3 A)
What are automatic stabilisers.
How they work in reccession / boom
downsides
Mechanisms which redice the impact of change in economny in national income. for example on govt spending in a automatic stabilers.
As in recession benifits increase due to more employmed benfits are the stabilser as they reduce overall AD
As boom tax increase due to people having more money tax v disposable income decreasing consumption
automatic stabliers cannot prevent fluctuation simple reuduce in size.
4.5.3 A)
discrentionary fisical policy
Deliberate manipulation of govt expenditure and tax to influence economy
4.5.3 B)
What is nation debt
Is the sum of all govt debt
4.5.3 B)
What is fisical defict
Is the amount spent more than earnt in 1 yr
4.5.3 C)
What is cyclical deficit
Part of the deficit that occurs becuase of govt spending and tax flucates around trade cycle.
recession v tax ^ spending. increasing deficit faster
