9.2 Fiscal policy

How does fiscal policy create labour incentives?

Changes in income tax can improve incentives for people to actively look for work Lower taxes might also have a positive effect on work effort and labour productivity

The relationship between the budget balance and the national debt.

Deficit relies to the annual borrowing requirement of the government. (often referred to as budget deficit) Debt related to the total level of public sector debt built over previous years. (often referred to as national debt)

The difference between direct and indirect taxes.

Direct: Levied on wealth, income and profit. e.g. income tax Indirect: Spending e.g VAT

How fiscal policy can be used to influence aggregate demand.

Expansionary fiscal policy: Increases AD Contractionary fiscal policy: Decreases AD

What is fiscal policy?

Fiscal policy involves the manipulation of government spending, taxation and the budget balance to achieve the Governments macroeconomic objectives.

What is a budget surplus?

G<T. This represents a net withdrawal from the circular flow of income and hence a budget surplus is contractionary.

What is a balance budget?

G=T

How does fiscal policy help Research and development and innovation?

Government spending and tax allowances could be used to encourage research Tax incentives can be used to stimulate investment in low carbon technologies

How is fiscal policy involved with Entrepreneurship and investment?

Government spending can be used to fund an expansion in new small business start-ups

What is a budget deficit?

Government spending exceeds revenue. G>T. This is a net injection of demand into the circular flow of income so the budget deficit is expansionary.

The difference between progressive, proportional and regressive taxes.

Progressive: As income rises, a greater proportion of income is paid to the Government in tax. Regressive: When the proportion of income paid in tax falls as income increases. Proportional taxation: The proportion of income paid in tax stays the same as income increases.

Hoe does fiscal policy help promote human capital of the workforce?

Spending on education and increased investment in health and transport can also have important supply-side effects in the long run Government spending can help to improve human capital, employability and productivity

How does fiscal policy help Capital spending

Spending on infrastructure provides the capacity needed for other businesses to flourish. Lower rates of corporation tax might attract inward investment from overseas

How fiscal policy can be used to influence aggregate supply.

Supply side fiscal policy-Used to increase economy's ability to produce and supply goods and services through creating incentives to work, save, invest, and be entrepreneurial. Finance and retraining schemes for unemployed workers is an example. The government can also cut cooperation tax so businesses can supply more.