lesson 13, whatever it is Flashcards
What is the purpose of fiscal policies?
To manage economic stability and growth
Fiscal policies are government strategies aimed at influencing economic activity through taxation and spending.
Distinguish between demand management and supply side effects of fiscal policies.
Demand management focuses on influencing total demand for goods/services, while supply-side effects aim to enhance productive capacity
Demand management may involve adjusting taxes and government spending to influence consumer demand.
What are discretionary fiscal policies?
Policies that are actively changed by the government to influence the economy
Examples include changes in tax rates or government spending plans.
What are non-discretionary fiscal policies?
Policies that are automatically adjusted based on economic conditions
Examples include automatic stabilizers like unemployment benefits.
What is the AD-AS model?
A diagrammatic approach used to discuss aggregate demand and aggregate supply in relation to fiscal policies
This model helps visualize the effects of fiscal policy on the economy.
What is a government budget?
The government’s proposed revenue and spending for a financial year
This is passed by Parliament and presented by the Finance Minister.
What is tax revenue?
The main source of funding for the government, derived from taxes collected
This revenue is crucial for financing public goods and services.
What is the purpose of taxation?
- To finance government spending
- To redistribute income
- To combat inflation
- To reduce consumption of undesirable goods
- To protect local industries
- To reallocate resources
Taxation serves multiple roles in the economy.
Define progressive tax.
A tax system where the tax rate increases as the taxable amount increases
Example: Singapore’s Personal Income Tax.
Define regressive tax.
A tax system where the tax rate decreases as the taxable amount increases
Example: Singapore Goods and Services Tax (GST) affects lower-income individuals more.
Define proportional tax.
A tax system where the same tax rate is applied regardless of income level
Examples include flat tax systems like Russia’s Personal Income Tax.
What are direct taxes?
Taxes where the burden falls directly on the taxpayer and cannot be shifted
Examples include corporate income tax and personal income tax.
What are indirect taxes?
Taxes where the burden can be shifted to others
Examples include value-added taxes (VAT) and excise duties.
List advantages of direct taxes.
- Source of revenue for the government
- Elasticity in tax rates
- Equitable based on income
- Built-in stabilizer
Direct taxes are designed to be fair and adjustable.
List disadvantages of direct taxes.
- Reduces disposable income
- Administrative costs
- Complicated tax returns
These factors can discourage compliance and create inefficiencies.
List advantages of indirect taxes.
- Reduces consumption of undesirable goods
- Easy to collect
- Revenue from tourists
- Spread out tax payments
Indirect taxes can be less visible to consumers.
List disadvantages of indirect taxes.
- Tends to be regressive
- Loss of economic welfare
- Inflationary influences
Indirect taxes can disproportionately affect lower-income individuals.
Calculate chargeable income: Total income - Total relief.
Chargeable income = Total income - Total relief
This formula is used to determine taxable income.
What is a budget surplus?
When government revenue exceeds expenditure
Surpluses can be used for savings or future investments.
What is a budget deficit?
When government expenditure exceeds revenue
Deficits may require borrowing or reducing spending.
True or False: A recurring budget deficit can negatively impact economic confidence.
True
Recurring deficits can lead to reduced consumer and business confidence.
What is fiscal policy?
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to influence and stabilize a nation’s economy.
What are the two main fiscal tools?
- Government Spending
- Taxation
