Definitions Flashcards
Fiscal policy
Influencing the level of economic activity through the manipulation of government income and expenditure
Taxation and spending decisions of a government
Government budget
Outlines government spending proposals and tax charges
Government receipts
Current government expenditure
Running public services
Capital government expenditure
Investment spending
Progressive taxation
Tax in which the tax rate increases as the income increases
Income tax
Proportional taxation
Tax where the rate of taxation is fixed
VAT
Regressive taxation
Tax imposed in an manner that the tax rate decreased as the amount of taxable income increases
VAT can be regressive
Direct taxation
Tax placed on income of the people and firms that cannot be avoided
Indirect taxation
Tax levied on expenditure of goods and services
Good tax
Equitable (a persons contribution should be in proportion with the revenue they enjoy)
Certain (know the amount being paid)
Convenient (to calculate and pay)
Economic (taxing amount that is necessary)
Budget position/fiscal stance
Difference between government expenditure and revenue
Public sector net cash requirement PSNCR
Cyclical budget position
Takes into account fluctuations in tax revenue and expenditure due to the economic cycle
Cyclical budget deficit
During the low points of the economic cycle
Increase unemployment/decrease consumption = decrease revenue (recession)
Cyclical budget surplus
During the high points of the economic cycle
Decrease unemployment/increase consumption = increase revenue
Structural budget position
Governments actual fiscal position taking into account estimated budgetary consequences of the economic cycle
Provide indication of orientation of fiscal policy
Structural budget deficit
The level of deficit even when the economy is at full employment
Structural budget surplus
The level of surplus in an economy
Current budget
Summary of net cash flows at that particular time
Budget deficit
Amount the government has to borrow per year to meet its current spending plans
National debt
Total amount of money the government owes to the private sector and other purchases of gilts
Crowding in
A process by which a decrease in government expenditure crowds in private sector activity by lowering the cost of borrowing
Crowding out
A process by which an increase in government expenditure crowds out private sector activity by raising the cost of borrowing
Monetary policy
Involves altering the bank rate, money supply, exchange rate or by quantitative easing in the economy
Bank rate
Rate of interest we pay in reserves held by commercial banks at the BoE
