7.5d - Government Economic Policies Flashcards
What are the key government economic objectives?
- Encouraging economic growth
- Controlling inflation
- Keeping unemployment down
- Ensuring a balance between X and M
- Keeping exchange rates stable
Monetary policy definition
Controlling the supply of money and the rate of interest
Fiscal policy definition
The use of tax and government spending in the economy
Quantitative easing definition
A method of boosting economic growth in which the government buys financial products such as pension funds or bonds (those who sell the assets can then use the money to buy other things and the money is spread around the economy)
Tax definition
A charge placed by the government on income, goods and services
Direct taxation definition
Tax on income or profits
Indirect taxation definition
Charges on purchases
What is the indirect taxation in the UK?
VAT - a 20% charge on the price of most products
What is another name for fiscal policy?
Budgetary policy
Implications of high tax rates:
- Reduces spending power
- Reduces demand
- Reduces economic activity
Expansionary fiscal policy definition
Fiscal policy involving cutting taxes and/or raising spending
When is expansionary fiscal policy used?
- Times of economic slowdown
- High unemployment
Implications of expansionary fiscal policy:
- Government borrowing increases
- Demand for goods increases
- Lower unemployment
Contractionary fiscal policy definition
Fiscal policy involving raising tax rates and/or cutting spending
When is contractionary fiscal policy used?
- When production is at 100%
- When economy is at risk of high inflation
