Fiscal Policies

Question 1

What does fiscal Policy Invlove?

Answer 1

Government spending and taxation to influence AD

Question 2

What is a balanced budget

Answer 2

Revenue = expentiture

Question 3

What is public debt

Answer 3

The cumulative total of past governmetn borrowing which has to be repaid with interest

Question 4

What are the objectives of fiscal policy

Answer 4

Low and stable infaltion
Lowwer unemployment
reduce fluctuations in cycle
Stable and long term EG
Redistrubutions of income for equity
Control net external balance

Question 5

What can income tax cuts do

Answer 5

Infleunce labour to be more productive

Question 6

What happens in expansionary fiscal policy

Answer 6

REduce tax, increase goc spending to shift AD outward

Question 7

Draw expansionary fiscal policy

Question 8

Describe the factors and their effects of expansionary fiscal policy

Answer 8

1. Decrease coporation tax, increase output etc
2. Increase unemployement benefits, more spending etc

Question 9

What happens during contractionary fiscal policy

Answer 9

Decrease goc spending and increase taxes to shift AD inward

Question 10

Draw contractionary fiscal policy

Question 11

Describe the factors and effects of contractionary fiscal policy

Answer 11

1. Increase income tax, discretionary income decrease, consumption and unemployment etc
2. Decrease spending - Less income, money supply
3. Less subsidies increase prices so decreasme demand

Question 12

What is decrease in money suppyl bad

Answer 12

Lower economic growth as finding it harder to borrow, banks less willing to loan. Less consumtpion etc

Question 13

How can fiscal policies have an impact on the supply side

Answer 13

Income taxes, more productive workers so more potential output
Subsidies

Question 14

What are automatic stabilisers and give an exmaple

Answer 14

Automatic fiscal chanegs that occur as the economy moves through the stages of the economic cycle
EG benefits increase in recession

Question 15

Draw the economic cycle with labels

Question 16

What is the trend rate of growth

Answer 16

The long term, sustainable economic growth that econoym can achieve

Question 17

WHat happens during recession

Answer 17

Higher unemployment
Lower inflation
Real GDP higher
Value of income and pension higher
Lower tax revenue if progressive tax

Question 18

What are the sources of government revenue

Answer 18

1. Taxation
2. Sales of goods and services
3. Sla eof governemtn owned assets

Question 19

What is another word for sellign gov assets

Answer 19

privitisation

Question 20

What is an example of sale of goods and services

Answer 20

train tickets

Question 21

Talk abotu types of taxes

Answer 21

• Dirext taxes imposed on income and profits, paid directly to government
• Indirect taxes are livied on the expenditure of g/s.. Not all paid directly to goc, but depend of PED of goods (firms can give more cost in PED lower)

Question 22

What are examples of direct taxes

Answer 22

Income tax, coporation taxes, capital gains tax, inheritance tax

Question 23

What is capital gains tax?

Answer 23

A tax that is imposed on the profit that an investor makes when sellign an asset

Question 24

What are examples of indirect taxes and definitions

Answer 24

VAT (20% in UK) (Tax applied to all commercial activities invloving production and distribution of g/s. Consumption tax as final customer pays)
Excise duties (indirect taxes imposed on certina goods such as tobacco and alcohol)

Question 25

What are types of Gov expenditure

Answer 25

- Current expenditure - Capital expenditure - Transfer payment

Question 26

WHat are current expenditures

Answer 26

Daily payments required to run gov and public sector Eg wages of public employees eg nhs

Question 27

What are capital expenditure

Answer 27

Investments in infulstructure and capital equipment

Question 28

What are transfer payments

Answer 28

These are payments made by the gov for which no g/s are exchange

Question 29

Why do governments interviene

Answer 29

- Promote equality - Correct market failure - Gov revenue (taxes)

Question 30

What two things can taxes do?

Answer 30

Discourage consumption Redistribute income and wealth

Question 31

What is progressive taxes

Answer 31

As income rises, a larger percentage of income is paid in tax

Question 32

Draw progressive taxes

Question 33

Draw regressive taxes

Question 34

What is regressive tax?

Answer 34

As income rises, smaller pecentage of income pain in tax

Question 35

What is the tax situation in US

Answer 35

Income tax is progressive but almost all state taxes are regressice (bottom 20% of incoem earners pay abt 6 times more than top 20% earners)

Question 36

Draw proportional tax

Question 37

What is proportional tax

Answer 37

As incoem rises, the same percentages of income is paid in tax

Question 38

What are marginal tax rates

Answer 38

The amount of additional tax paid for every additional dollar earned as income

Question 39

In progressive tax rates, what happens to marginal tax rates

Answer 39

Increase as income increases

Question 40

How to calculaye marginal tax rates

Answer 40

Change in total tax paid / change in income *100

Question 41

What are the principles of taxation

Answer 41

1. Simple 2. Fair (equity, taxe should reflect payers ability to pay) 3. Convinient 4. Efficient (not expensive 5. Flexible

Question 42

In the UK, who pays more, corporations or households?

Answer 42

Households

Question 43

In singapore, who pays more, households or corporations

Answer 43

corporations

Question 44

What are consequences of taxes

Answer 44

- Deincentive to be productive - Brain drain when people move to benefit from more generous tax system

Question 45

What do capital and welath taxes do and what are they?

Answer 45

Decrease inequality gap Direct taxes

Question 46

What is cyclical budget d/s?

Answer 46

Related to economic cycle During boom, more surplus as tax increase

Question 47

What is a structural budget?

Answer 47

Focus on the long-term underlying position of the government, independant of the effects of the economic cycle

Question 48

What does structural budegt asses?

Answer 48

Wether the government revenues are sufficient to cover ongoign expenses over the long term without considering fluctuations in cycle

Question 49

What is an example that will chaneg the structural budget?

Answer 49

An ageing populations means more expenditure on pensions

Question 50

What is the difference from external and internal borrowing?

Answer 50

External is outside country Internal is taxes from pop

Question 51

Why is external borrowing bad?

Answer 51

Politicals vunerabilities

Question 52

What are consequences of a budget deficit?

Answer 52

Increase in national debt Inflationary pressures Vunerable to economic shocks Impact on economic growth

Question 53

How does a deficit in budget affect economic growth

Answer 53

Short to medium term help, but over time inflation, decrease consumption etc

Question 54

Why is deflation or disinflation bad?

Answer 54

Delayed purchases, no spending or investment etc

Question 55

What are consequences of a large national debt

Answer 55

- burden on future generations - Opportunity cost (less on provision etc) - Diminishing international credit rating - Crowding Out

Question 56

Describe relationship between crowding otu and national debt

Answer 56

Borrowing mpre, competes with private sector for available funds, pushing interest rates up

Question 57

What is the OBR and when estabilished

Answer 57

Office for budget responsibility 2010

Question 58

What is the responsibility of OBR

Answer 58

- Primarily manages public sector fiannces to ensure long term is sustianable - Makes economic predictions tot help with policymaking