Tools that help governments achieve their macroeconomic objectives ex: tax rates, and levels of gov spending
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What does Fiscal Policy do
Adjusting levels of government expenditure and taxation to influence aggregate demand in economy
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Describe Government Revenue
Main source is taxation and falls into direct and indirect tax
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What is direct taxes
Taxes on firms and individuals linked to income and wealth
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Key examples of direct taxes
Income. Social insurance. Corporation. Capital gains. Inheritance.
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What are Indirect Taxes
Taxes on spending
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Key examples of Indirect Tax
Sales. Duties. Custom. Council. Business rates. Stamp
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What are Environmental Taxes
Designed to protect the environment
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Key examples of Environmental Taxes
Landfill. Climate change levies. Aggregates.
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What is Government Expenditure
Total planned expenditure and amount to be spent on each category. Mandatory and discretionary spending
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What is a Fiscal Deficit
Government's plan to spend more than they receive in tax revenue. They must borrow money
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What is a Fiscal Surplus
The government were to spend less than it received in tax revenue
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Impact of Fiscal Deficit
National debt increase, caug asinn opportunity cost. Future generations will be burdened
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Impact of Fiscal Surplus
Can be used to lower taxes or to pay off the national debt
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Impact of Fiscal Policy on Inflation
CFP can reduce demand-pull inflation.
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What is expansionary fiscal policy
Fiscal measures designed to stimulate demand in the economy
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What is contractionary fiscal policy
Fiscal measures designed to reduce demand in the economy
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Impact of Fiscal Policy on Economic Growth
EFP can stimulate economic growth
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Impact of Fiscal Policy on Unemployment
EFP reduces unemployment by stimulating demand
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Impact of Fiscal Policy on Current Account Deficit
For deficit, CFP reduces aggregate demand
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Impact of Fiscal Policy on Environment
Taxes like landfill tax is used to reduce environmental damage
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What is monetary policy
The use of interest rates and the money supply to control aggregate demand in the economy
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What is interest
The price paid to a lender for borrowed money
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Why do countries have different interest rates
-Diff banks charge diff rates est-Money borrowed without security has higher rates -Amount paid to a borrower is higher than the amount to saver
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Role of Central Banks in setting interest rates
-Regulating the bank system -A last resort lender to commercial banks -Controlling inflation and stabilising a nation's currency -Setting interest rates
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Impact of Interest Rates to Inflation
Raise the interest rate, to drop the rate of borrowing. And money supply grows less quickly, to help aggregate demand in the economy.
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Impact of Interest Rates to Unemployment
Lower interest rates to reduce unemployment. Increase in demand for loans and firm and household spending would increase. Increasing aggregate demand and firms will respond by increasing output. Needing staff
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Impact of Interest Rates to EG
May be used to get an economy out of recession.Lower interest rates to stimulate economic growth/activity
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Impact of Interest Rates to the Current Balance
For a reduction of deficit: Rise in interest rates, to lower aggregate demand and reduce spending on imports.
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What are important factors for interest rates on the Current Balance
-Income elasticity of imports -Strength of the link between IR and ER. -Price elasticity of demand for imp and exp.
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Other cards in this set
Card 2
Front
What does Fiscal Policy do
Back
Adjusting levels of government expenditure and taxation to influence aggregate demand in economy
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