Government objectives
Name two main government macroeconomic objectives
Low inflation and low unemployment.
What is tax revenue used for?
Funding government services
What is market failure.
.
When markets allocate resources inefficiently.
Policy to reduce unemployment?
Spending or training programmes.
What is fiscal policy?
Government spending and taxation decisions.
What does “economic growth” mean?
An increase in a country’s output/GDP over time.
What type of tax is VAT
Indirect tax
Example of a public good
Streetlights,defense
Policy to reduce inflation?
Higher taxes or lower government spending.
Define Inflation.
Persistent rise in general price level.
Why do governments aim for a stable balance of payments?
To avoid too much borrowing from other countries.
Example of government spending?
Healthcare, education, roads, pensions.
Why do demerit goods cause market failure?
Overconsumption due to ignored negative externalities.
How to reduce pollution?
Taxes, regulations, subsidies for clean tech.
What is government intervention?
Laws, taxes, or policies affecting markets.
What is a government objective regarding income distribution?
To reduce inequality
Why tax demerit goods?
To reduce consumption and cover external costs.
What is a positive externality?
A benefit to society not included in the market price.
Policy for recession?
Expansionary fiscal policy
Define subsidy
Government payment to reduce producer costs.
Why is full employment important?
More people working means higher income, spending, growth, and tax revenue.
Difference between progressive and regressive taxes.
Progressive = higher % for high incomes; regressive = higher % for low incomes.
Why are merit goods under-consumed?
People underestimate benefits or cannot afford them.
How subsidies correct market failure?
Lower costs → more supply of merit goods → more consumption.
When spending exceeds tax revenue.