fiscal policy Flashcards
(15 cards)
What is fiscal policy
Fiscal policy is the use of government spending and taxation to influence the economy
What economic objectives can the fiscal policy involve
controlling inflation
reducing unemployment
promoting economic growth
What are direct taxes
A tax on income and wealth
Give examples of direct taxes
Income tax
National Insurance tax
Inheritance tax
What is an indirect tax
A tax on spending which is imposed on the producer but may then be passed on to consumers with an increase in price
Give examples of indirect tax
VAT
Excise duties (taxes on things like tobacco)
Custom duties (taxes on import goods la into the country)
What is balanced budget
When revenue is equal to government spending
What is budget surplus
When revenue is greater than government spending
What is budget deficit
When revenue is less than government spending
What will budget surplus do
reduce
economic growth and inflation
What does budget deficit do
increase
economic growth and employment
Costs of fiscal policy
-consumers may rather save than spend their income so economic growth won’t happen as expected
-firms and consumers might want to spend their income on imports contributing to other countries economic growth and not our own
-inflation may rise if supply cannot keep up with demand
-if the government spends more on one area, like healthcare they are spending less on other areas. This is opportunity cost
-if a government cuts taxes it must either spend less or accept a higher budget deficit
benefits of fiscal policy
-reduced unemployment
-economic growth increase
what are progressive taxes
Taxes that take a greater percentage of tax the higher the income
what is the maximum you can earn without paying taxes on it
£12,570
