Corporation Tax And Government Spending On Healthcare And School

Question 1

What is corporation tax

Answer 1

Tax on firms profits

Question 2

Explain the impact of increasing corporation tax

Answer 2

Firms are able to keep less of their profit, this means they will reduce their investment causing a decrease in AD. And if their is less investment then you will also see that machinery will need replacing meaning that you will see a left shift in LRAS!!

Question 3

Name the evaluation point of increasing corporation tax.

Answer 3

Firms keep less of their profit , meaning they will decrease their investment causing a decrease in AD.

Question 4

Name the advantage if increasing corporation tax

Answer 4

Increase tax revenue for the government, helping to improve the budget. Or increase tax revenue could increase government spending which will lead to economic growth.

Question 5

Disadvantage of high corporation tax

Answer 5

Means less profit and are likely to reduce their investment in capital which causes a depreciation in productivity. This means that you see a decrease in growth in the long run.

Question 6

What policy is likely to include a reduction in corporation tax

Answer 6

Expansionary fiscal policy

Question 7

Explain an advantage of increasing corporation tax

Answer 7

Lowers costs for firms. This will shift SRAS to the right and increase real GDP in the short run. Also firms can keep more of their profit, so they are likely to increase investment, which will increase AD. Increasing investment will increase the productivity of capital and shift LRAS TO THE RIGHT, LEADING TO ECONOMIC GROWTH.

Question 8

Explain a disadvantage of decreasing corporation tax

Answer 8

Means the government will receive less tax revenue. Also extra profit from reducing corporation tax might just be kept by the owners instead of being used for investment.

Question 9

Explain the impact of an increase in healthcare and education spending.

Answer 9

Long run supply side benefit, which may cause the multiplier effect and also may cause economic growth but it will worsen the budget deficit.

Question 10

Explain an advantage of an increase in government spending on healthcare and education

Answer 10

Increase in G, which increases AD and therefore increase real GDP. Spending on healthcare and education will make the workforce healthier and more productive, so the LRAS shifts to the right.

Question 11

Explain a disadvantage of increase gov spending on healthcare and education

Answer 11

Worsens budget deficit. Spending could go towards unproductive bureaucracy or useless degrees.

Question 12

An advantage of decrease on spending on healthcare and education

Answer 12

Higher labour supply which can lower wages and therefore lower real costs for firms. Shift SRAS to right and increase real GDP

Question 13

Evaluation point for this

Answer 13

Reduced spending means workers are less productive so SRAS will shift to the left reducing real real GDP.

Question 14

WHAT is VAT?

Answer 14

Value added tax which is charged as a percentage of the price of the good sold.

Question 15

Advantage of increasing VAT

Answer 15

Increase tax revenue for the government which will improve the budget defieicet

Question 16

Evaluation point for increase VAT

Answer 16

Increase costs for firms which shifts SRAS inwards. This reduces economic growth and leads to cost push inflation.