Lesson 31-Fiscal Policy Flashcards
(24 cards)
Define macroeconomic policies
These are govt policies designed to achieve macroeconomic objectives.
What are the two types of government policies?
Demand management policies
Supply side policies
Define demand management policies
These are policies designed by the govt to achieve their macroeconomic objectives by influencing the level of AD in the economy
What are the two instruments used by govt in order to influence the level of AD in an economy?
Fiscal Policy
Monetary Policy
Define fiscal policy
This involves the manipulation of taxes and govt budget in order to achieve macroeconomic objectives by influencing the level of AD.
Define govt budget
This refers to the govt expenditure and revenue.
What does it mean when a country had a budget surplus
This is when gvt revenue is greater than its expenditure.
State 4 reasons for taxes
To control the level of AD
To pay for public sector services
To reduce the consumption of demerit goods
To redistribute income
What are two types of taxes?
Direct taxes
Indirect taxes
Define direct tax
These are taxes imposed by the govt on the incomes and wealth of consumers. The person paying the tax has to bear the burden of the tax.
What are the types of direct taxes
Income tax
Corporation tax
Inheritance tax
Capital gains tax
Income tax
Tax on income
Corporation tax
Taxes on company profits
Inheritance tax
Taxes on wealth and property
Capital gains tax
These are taxes on profits made on purchases and sales of shares and securities.
Indirect taxes
These are taxes imposed by the gvt on goods and services. They are known as indirect because the person paying the tax does not feel the burden when paying the taxes.
What curve does indirect taxes affect
The supply curve
Types of indirect taxes
Value added taxes (VAT)
Excise duties
Custom tax
Taxes on imports-tariffs
Environmental taxes
Define environmental taxes
These are designed to protect the gvt.
What are the types of taxes under environmental taxes
Landfill tax
Climate change levies
Define landfill tax
Imposed on the disposal of waste in landfill sites according to the weight
Define climate change levies
Imposed on suppliers of electricity, gas and coal to reduce greenhouse gas effects.
Define expansionary fiscal policy and how it works
This refers to a situation when the govt increases the level of AD by reducing taxes and increasing its own expenditure in order to achieve economic growth or reduce unemployment.
Define contractionary fiscal policy and how it works
This refers to a situation when the gvt reduces the level of AD by raising taxes and recuing the level of govt expenditure in order to reduce inflation or reduce a deficit on the BOP.
