Exam code: 0455 & 0987
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Define government budget.
A government budget is a statement of the government’s planned revenue and expenditure over a specific period, usually one year.
What is a public good?
A public good is a good that would not be supplied effectively by the market due to the free rider problem, such as national defence or street lighting.
A government budget occurs when government expenditure exceeds revenue, while a budget occurs when revenue exceeds expenditure.
A government budget deficit occurs when government expenditure exceeds revenue, while a budget surplus occurs when revenue exceeds expenditure.
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Define government budget.
A government budget is a statement of the government’s planned revenue and expenditure over a specific period, usually one year.
What is a public good?
A public good is a good that would not be supplied effectively by the market due to the free rider problem, such as national defence or street lighting.
A government budget occurs when government expenditure exceeds revenue, while a budget occurs when revenue exceeds expenditure.
A government budget deficit occurs when government expenditure exceeds revenue, while a budget surplus occurs when revenue exceeds expenditure.
What is the formula for calculating the budget balance?
The budget balance is calculated as government revenue minus government expenditure.
Why does the government provide merit goods such as education and healthcare?
The government provides merit goods because they would be under-consumed without intervention, so public provision increases access and benefits society.
Define market failure.
A market failure occurs when resources are not allocated optimally from society’s point of view, leading to inefficiency.
One reason for taxation is to government revenue needed to provide essential services and .
One reason for taxation is to raise government revenue needed to provide essential services and public goods.
How does government spending on welfare and social protection support equity in society?
Government spending on welfare and social protection helps to support equity by providing direct financial support to vulnerable groups, reducing the gap between rich and poor.
True or False?
A government budget surplus occurs when government expenditure is greater than government revenue.
False.
A government budget surplus occurs when government revenue exceeds expenditure, not the other way around.
Define fiscal policy.
Fiscal policy is the use of government spending and taxation to influence the economy’s level of activity.
Define direct tax.
A direct tax is a tax imposed on income or profits, paid directly to the government by individuals or firms.
Define indirect tax.
An indirect tax is a tax imposed on spending, usually added to the price of goods and services and paid to the government by producers.
What is a progressive tax system?
A progressive tax system is one in which the percentage of income paid in tax increases as income rises.
What is a regressive tax system?
A regressive tax system is one in which the percentage of income paid in tax falls as income rises.
What is a proportional tax system?
A proportional tax system is one in which the same percentage of income is paid in tax, regardless of income level.
Indirect taxes can lead to prices, which may cause reduced .
Indirect taxes can lead to higher prices, which may cause reduced consumption.
How do direct taxes affect consumers' disposable income?
Direct taxes, such as income tax, reduce consumers' disposable income by decreasing the amount of income they can spend or save.
True or False?
Higher income tax can decrease the incentive for workers to do overtime.
True.
Higher income tax may reduce the incentive to work overtime or pursue higher-paid jobs.
Indirect taxes increase of production for firms, which can lead to sales and .
Indirect taxes increase costs of production for firms, which can lead to reduced sales and lower profits.
Why might a business relocate to another country because of taxation?
A business may relocate to a country with lower taxes to reduce its costs and increase profitability.
One purpose of taxation is to fund services such as .
One purpose of taxation is to fund public services such as healthcare and education.
Define fiscal policy.
Fiscal policy is the use of government spending and taxation to influence total (aggregate) demand in the economy.
What are the two main tools used in fiscal policy?
The two main tools of fiscal policy are government spending and taxation.
True or False?
Expansionary fiscal policy is used to slow down economic growth.
False.
Expansionary fiscal policy is used to generate further economic growth, not to slow it down.
Fiscal policy is usually presented annually through the .
Fiscal policy is usually presented annually through the Government Budget.
Define total (aggregate) demand.
Aggregate demand is the total demand for goods and services in an economy, calculated as C + I + G + (X − M).
Total (aggregate) demand is calculated as + I + G + (X − M).
Total (aggregate) demand is calculated as C + I + G + (X − M).
How can changes in fiscal policy influence total demand?
Changes in fiscal policy can influence any component of total (aggregate) demand (C, I, G, X, M), often affecting several at once.
True or False?
Higher government spending and lower taxes are examples of expansionary fiscal policy.
True.
Expansionary fiscal policy involves higher government spending and/or lower taxes to increase aggregate demand.
Define disposable income.
Disposable income is the amount of income left to households after paying taxes, which they can spend or save.
Increasing government spending boosts demand for and , creating jobs.
Increasing government spending boosts demand for goods and services, creating jobs.
What effect does reducing taxes have on consumers' disposable income?
Reducing taxes increases consumers' disposable income, which may encourage higher spending.
What is the likely impact on the economy if the government cuts public spending in its budget?
Cutting public spending reduces demand for goods and services, leading to lower output, slower economic growth, and potentially higher unemployment.
If the government corporation tax, firms' net profits increase, which can lead to higher investment.
If the government decreases corporation tax, firms' net profits increase, which can lead to higher investment.
True or False?
Freezing public sector pay can reduce totsl (aggregate) demand and slow economic growth.
True.
When public sector pay is frozen, consumer confidence may fall, reducing consumption and total demand, which slows economic growth.
How can fiscal policy help achieve lower unemployment?
Fiscal policy can help achieve lower unemployment by funding job creation schemes, investing in infrastructure, or lowering taxes to encourage hiring.
Which fiscal policy measures can promote sustainability in the economy?
Fiscal policy can promote sustainability by funding renewable energy, protecting natural resources, and using environmental taxes to encourage greener behaviour.