lesson 19- fiscal policy Flashcards
(27 cards)
what is a fiscal policy
use of government spending, taxation and borrowing to affect the economy
-used to affect AD
-impacts everyone in the economy, and every macro indicator
how much did the government commit to spending, and receive in tax revenue in 24/25
£1,226 billion
£1,139 billion
what is a budget deficit
+ when does it happen
government is spending more than its receiving
-increase in gov spending and decrease in taxes
what is a budget surplus
government receives more than it spends
-decrease in gov spending, rise in taxes
what is public sector net cash requirement (PSNCR)
the borrowing of the public sector
-in a budget surplus, there is a negative PSNCR
what is a direct tax
goes straight to the governments treasury
-usually levied on income or wealth
-e.g. cooperation tac, capital gains tax, inheritance tax
what is indirect tax
goes through a third party before reaching the government
-e.g. through a retailer
-e.g. fuel duty
what is progressive tax
higher income, higher proportion of income payed in tax
-e.g. income tax
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what is a regressive tax
proportion of income payed decreases as the amount payed goes up
e.g. vat
the tax burden falls disproportionately on lower-income individuals, meaning they pay a higher percentage of their income in taxes compared to higher-income individuals. Essentially, the tax rate decreases as income increases.
what is proportional tax
the same regardless of income (flat tax)
-e.g. poll tax
-everyone pays the same
what are the reasons for tax
pay for government expenditure
-correct market failure by changing demand for certain products
-manage the economy as a whole by influencing inflation unemployment etc
-can reduce income and wealth in some groups, and boost the poorer+
what are expansionary/ loose fiscal policies
increasing government spending
lowering taxes
-increase AD
what are deflationary/ tighter fiscal policies
decreasing government spending,
rising taxes
-reduce AD
why do we need fiscal policies
increase macro performance
-help distribute wealth and income
-help correct market faliure
what is demand management
using fiscal policies to influence AD/ GDP and other macro objectives
what is a discretionary fiscal policy
deliberate use of tax and spending, and not relying on automatic stabolisers
draw business cycle with and without fiscal policies
https://www.google.de/imgres?q=draw%20business%20cycle%20with%20and%20without%20fiscal%20policies&imgurl=https%3A%2F%2Fwww.learn-economics.co.uk%2FGraphs%2FFiscal.svg&imgrefurl=https%3A%2F%2Fwww.learn-economics.co.uk%2FFiscal-policy.html&docid=217L1NkOD6PHJM&tbnid=97TzyGADpnLDDM&vet=12ahUKEwiO28no_JONAxUhKvsDHTgMEzAQM3oECGUQAA..i&w=800&h=482&hcb=2&ved=2ahUKEwiO28no_JONAxUhKvsDHTgMEzAQM3oECGUQAA
what are automatic stabilisers
expenditure that automatically rises in a recession and falls in a boom
what is the office of budget responsibility
set up to give an independent view on the UKs public sector finances, inc economic forecasts. Removes bias
-monitor balancing cyclically adjusted budget, and reducing national debt
what is the golden rule
over the economic cycle, the government should only borrow to invest, not to fund current spending
what is the sustainable investment rule
national debt should be kept on or below 40% of GDP
what do classical economists believe about gov budgets vs Keynesian economists
that governments should have balanced budgets and that all returns to equilibrium
demand side policies should be used, and spending has a multiplier effect
what is capital government expenditure
spending on investment goods e.g. motorways, will be consumed over longer than a year
