Economics Unit 2 - Macroeconomic policy

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What is fiscal policy?
Involves the use of government spending and taxation to affect the level of AD
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What does an expansionary fiscal policy do?
Increase AD
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What does a contractionary fiscal policy do?
Decrease AD
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What is direct taxation?
Levied on income, wealth and profit
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What is indirect taxation?
What is indirect taxation?
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What is progressive taxation?
Tax rises as income rises
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What is regressive taxation?
The tax rate falls as income rises
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What is proportional taxation?
The tax rate is constant for all income levels
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When will a budget deficit occur?
Government spending > Tax revenue
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If you increase the tax rate will AD rise or fall?
Fall
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If you increase government spending will AD rise or fall?
Rise
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What is monetary policy?
Involves the use of money supply and interest rates to affect the level of AD
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What are interest rates?
The reward for saving and the cost of borrowing
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What is quantitative easing?
Increasing the money supply by electronically creating funds
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If you decrease interest rate will AD fall or rise?
Rise
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If you increase money supply will AD rise or fall?
Rise
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What are the disadvantages of fiscal and monetary policy?
Time lags, Inflationary pressures
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What is a supply side policy?
Policies that aim to improve the productive potential of an economy
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What is production?
Value of output of goods and services
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What is productivity?
A measure of the efficiency of factors of production
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What are the disadvantages of supply side policies?
Time lags, Risks of government failure, Externalities
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Other cards in this set

Card 2

Front

What does an expansionary fiscal policy do?

Back

Increase AD

Card 3

Front

What does a contractionary fiscal policy do?

Back

Preview of the front of card 3

Card 4

Front

What is direct taxation?

Back

Preview of the front of card 4

Card 5

Front

What is indirect taxation?

Back

Preview of the front of card 5
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