Fiscal Policy

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What are the policy instruments for fiscal policy
Tools that help governments achieve their macroeconomic objectives. AKA tax rates, and level of government spending.
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What is fiscal policy
Adjustive levels of government expenditure and taxation to influence aggregate demand in the economy.
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How does the government get it's revenue
Taxation. To pay for public sector services, control aggregate demand, fair distribution of wealth
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Describe Direct Taxes and give examples
Taxes on firms and individuals. Income tax-amount earned by individual. Inheritance tax- money that is inherited from people who die. Corporation tax- imposed on profits by limited companies
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Describe Indirect Taxes and give examples
Taxes on spending. Sales tax- taxes on spending (VAT). Duties- select range of goods. Custom duties- taxes on imports
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Describe Environmental Taxes and give examples
Designed to protect the environment. Landfill tax- On disposal of waste in landfill sites. Aggregates Levy- tax on sand, gravel, and rock that's dug up
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What is government expenditure
Total planned expenditure and amount to be spent on each category is announced each year. Mandatory- automatic payments. Discretionary- extra/new spending
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What is fiscal deficit and surplus
1. Government's plan to spend more than they receive in tax revenue
2. The government were to spend less than it received in tax revenue
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Impact of fiscal deficits
National debt gets bigger, has to spend more and more of its revenue on paying off the debt; causing an opportunity cost
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Impact of fiscal surpluses
Most governments would use it to pay off national debt. Would reduce future interest payments and strengthen the nation’s finances.
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Impact of FP on Inflation
Contractionary fiscal policy can be used to reduce inflation. It is fiscal measures designed to reduce demand. The government could cut spending or raise taxes. Reducing disposable income and reducing demand.
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Impact of FP on Economic Growth
Expansionary Fiscal Policy (EFP) can stimulate economic growth. Increases in gov expenditure will increase aggregate demand. Cuts in taxes will generate more demand because firms and households have more disposable income.
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Impact of FP on Unemployment
EFP helps reduce unemployment. Increases in gov expenditure and tax cuts stimulate demand. To meet extra demand firms have to increase staff and unemployment will fall. Government could direct extra spending towards the construction industry, which is lab
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Impact of FP on Current Account Deficit
CFP will help reduce aggregate demand. Will help to reduce the demand for imports.
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Impact of FP on Environment
Used to reduce environmental damage. Some governments use subsidies to encourage activities that are environmentally friendly.
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Other cards in this set

Card 2

Front

What is fiscal policy

Back

Adjustive levels of government expenditure and taxation to influence aggregate demand in the economy.

Card 3

Front

How does the government get it's revenue

Back

Preview of the front of card 3

Card 4

Front

Describe Direct Taxes and give examples

Back

Preview of the front of card 4

Card 5

Front

Describe Indirect Taxes and give examples

Back

Preview of the front of card 5
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