Fiscal

Question 1

For economic growth to happen what must the budget be

Answer 1

Deficit→ increased

spending , output and employment

Question 2

For low unemployment what must the budget be?

Answer 2

Budget Deficit → Increased spending, outputand employment

Question 3

For price stability what must the budget be

Answer 3

Budget Surplus Reduced spending so less pressure on the price level

Question 4

For a healthier balance of payments what must the budget be?

Answer 4

Budget Surplus → reduced spending On imports

Question 5

How do direct taxes affect markets ?

Answer 5

Direct taxes include income tax and national insurance .
If a large proportion of the workers income goes to taxes workers may not feel it’s worthwhile

Another tax is a cooperation tax which is the tax from the profit that a firm has made .
If this tax is reduced firms have more disposable income->use to expand,BUY CAPITALGOODS to increase demand ON THE OTHER HAND if cooperationtax increases then some firms will invest BUT its not worth the risk as post tax rewards are lower, .

Question 6

How do indirect taxes affect markets

Answer 6

These taxes sill cause the price level to rise and so quantity demanded falls -the extent to which this happens is based on the PED.
Therefore taxes discriminate against producers based on their products as consumers are less likely to buy high taxed products but instead buy ones with no taxes

Question 7

Why does the government put a high rate of tax on the demerit goods(have negative externalities)?

Answer 7

So that consumers are paying towards the external costs they cause.
-they also act as a deterrent
But could lead to illegal activity ->loss in tax revenue

Question 8

How does government spending affect the markets?

Answer 8

-GOVERNMENT IS A HUGE EMPLOYER OF LABOUR
-if government decides to hire more nurses due to increased demand,wages may increase
IF GOVERNMENT DECIDE TO SPEND MORE ,PRIVATE FIRMS BENEFIT eg.if gov decides to spend more on education there will be more whiteboards,furniture etc bought ->increasing profits for firms selling it
-CONSTRUCTION more capital expenditure
-GOVERNMENT PROVIDES SUBSIDIES eg.has been given to the renewable energy market,grants for small businesses, targets business set up in deprived areas

Question 9

What are thr problems if the government want to achieve economic growth and low unemployment through budget DEFICIT?

Answer 9

• Budget deficit increases disposable incomes of consumers but they may save instead of spending
• as disposable incomes rise,extra spending is on imported goods and services
• as budget deficits lead to a rise in total demand supply rises leading to more output and employment however supply may not rise to meet it causing inflation to rise

Question 10

What are the opportunity costs involved in fiscal policy?

Answer 10

Pg.176

Question 11

What is income and wealth redistribution ?

Answer 11

Government action using mainly taxation to reduce inequalities of income and wealth

Question 12

What’s a progressive tax?

Answer 12

A tax that takes a greater percentage of tax based on income

Question 13

Why is UK income tax progressive ‽

Answer 13

• tax allowance Is a greater percentage of a lower income so the tax is a lower percentage
• people on higher incomes move into a higher tax band

Question 14

What is inheritance tax

Answer 14

A proportion of wealth from a deceased person is distributed among family members, wealth is redistributed

Question 15

Reducing indirect taxes for redistribution?

Answer 15

Government may do this however…..

-goods with high tax (demerit goods) are continued to be taxed heavily which discriminate those with lower incomes

Question 16

Government spending for redistribution?

Answer 16

• may give benefits to low income groups increasing disposable income
• healrhband education->help them out of poverty cycle

Question 17

What is the problem with higher direct taxes from redistribution measures?

Answer 17

• if people receive benefits from government and they can live well enough on it this acts as a disincentive to work as they may not seek work
• may be more *reluctant to apply for a higher paid job *as difference in post tax income may not be worthwhile
• some high earners(talented workers) may move abroad to escape tax->UK government lose tax revenue
• high direct taxes act as as a disincentive for businesses to invest ,rate of cooperation tax is also considered
• people may be reluctant to save if a lot of their interest is taxed however UK now has personal saving allowance(first £1000 of savings interest is tax free )

IF MORE PEOPLE ARE RELUCTANT TO WORK,THE CAPACITY OF THE ECONOMY TO PRODUCE GOODS AND SERVICES IS REDUCED

Question 18

Legal methods of avoiding extra tax is tax avoidance

Higher rates of could lead to tax evasion where they hide incomes from tax authorities

Answer 18

Yh