Part 3 - Macroeconomic Policies Flashcards
(30 cards)
What is progressive taxation?
The marginal rate of tax increases as income rises (causing fall in inequality)
What is regressive taxation?
the marginal rate of tax falls as income rises (causing rise in inequality)
What is proportional taxation?
a constant marginal rate of taxation
What is the marginal tax rate?
Tax rate an individual pays on one additional pound of income
What does the laffer curve show?
Sometimes increasing tax means you get lower tax revenue as there is more incentive to avoid the tax and less incentive to work
What is income tax?
Tax taken directly from income
What is corporation tax?
Tax on company profits
What is national insurance?
Paid by individuals and companies to fund state benefits such as the state pension
What is VAT?
Sales tax you pay on goods and services
What are excise duties?
An additional sales tax (on top of VAT) usually on goods that create negative externalities
What is council tax?
Tax on domestic property dependent on the 1991 value of your house
What are business rates?
Tax on value of business property
What is expansionary fiscal policy?
Raise gov spending, cut taxes
What is deflationary fiscal policy?
Cut gov spending, raise taxes
What are some advantages of expansionary fiscal policy?
Increased economic growth
Reduces unemployment
Lower inequality
Positive multiplier and accelerator effect
What are some disadvantages of expansionary fiscal policy?
Increased inflation
Current account worsens
Increased pollution
Crowding out
What are cyclical deficits?
When government spending exceeds tax revenue
What is debt?
An accumulation of deficits
What policies can be used to reduce national debts?
Lower gov spending
Higher taxation
Privatisation
Reduce real value of debt
Default (reduce to pay back debt)
Boost economic growth
What are supply side policies?
Actions by gov designed to increase productive potential of economy (LRAS)
What are market based supply side policies?
Gov removes itself from resource allocation and creates bigger role for private sector
What are interventionist supply side policies?
Gov intervenes and increases its role in resource allocation to stimulate AS
What are the advantages of supply side policies?
Increased: economic growth, productivity
Decreased: unemployment, inflation
Balance of payments improves
What are the disadvantages of supply side policies?
Time lag for changes to take place (e.g education)
Opportunity costs
Rise in national debt due to increased GS
