IGCSE 1
What 2 main types of Taxes can the Govt impose?
Direct & Indirect Taxes
Give an example of a Direct Tax and an Indirect Tax
Direct: Personal income tax, Corporation (or profits) tax, Capital gains tax, Wealth (e.g. inheritance and property) tax
Indirect: Value added tax (VAT), Excise duties, Import tariffs, User charges
What is inflation?
Inflation: the sustained rise in price level of goods and services over time
What are the 3 methods of measuring GDP?
Income, Output & Expenditure methods
What is a recession?
•A recession occurs when real GDP declines over a period of 6 months or more ( two successive quarters)
It is a period of negative output with less being produced than the previous period
What are the 2 main 'instruments' that Fiscal Policy uses to influence Agg Demand?
Govt Spending & Tax
Give an advantage of a Direct Tax?
They are cost effective to collect
A wide tax base.
Anyone who buys goods and services will pay some indirect taxes
They can be used to discourage consumption and production of harmful products
What is an informal economy?
Informal economy: that part of the economy that is not regulated, protected or taxed by the government
What is the formula for calculating GDP using the Expenditure method?
C+I+G+(X-M)
What could cause a supply-side shock, resulting in a decrease in Agg Supply?
A decrease in AS, a negative supply-side shock, could result from a rise in fuel or raw material costs
Such effects would increase firm’s costs of production which may cause them to produce less
Why is it that Government spending can be a powerful measure to increase Agg demand? What 'effect' can it have on an initial amount spent?
because of the multiplier effect.
What is a Progressive Tax System?
Progressive tax is where a higher percentage of tax is levied on the income or wealth of the rich. As income rises so does the tax
What is a Regressive Tax System?
Regressive tax is where percentage tax falls as income rises
What is the difference between Nominal & Real GDP?
Real GDP has been adjusted for inflation, whereas nominal has not
How do we calculate real GDP per capita?
•real GDP per capita = Real GDP/Population
List 4 ways that the Govt uses to fund public expenditure:
•Borrowing from the private sector
•Rents from publicly owned buildings and land
•Admission charges, for example from public museums and monuments
•Revenue from the sale of some public services such as postal services and public transport
•Proceeds from the sale (or privatization) of government-owned industries and other publicly owned assets
•Interest charges on government loans to the private sector and overseas governments
•Taxes on incomes, wealth and expenditures
Refers to forms of government expenditure and taxation that reduce fluctuations in economic activity without any change in government policy
Automatic stabilizers
When it comes to products with an inelastic demand, who (Producers/Consumers) bear most of the tax? Why?
Products with inelastic demand – consumers bear most of the tax. This is because producers can pass on higher portion of the taxes in the form of higher prices as they know demand will not reduce significantly
List 3 difficulties experienced when measuring GDP?
This is because of the existence of unrecorded economic activity, both legal and illegal, and non-marketed goods & services
List 4 causes of a recession (Demand-side shocks):
Consumer expenditure and Investment could decline due to a fall in business and consumer confidence arising from a global financial crisis, or falling house prices in the domestic economy, The Govt may cut back its spending too much, and net exports could fall as a result of a rise in the exchange rate
List 4 aims of Govt taxation (taxing):
–redistribute from rich to poor
–discourage the consumption of demerit goods
–raise the cost of firms that impose cost on others
–discourage the consumption of imports and hence protect domestic industries
–Influence economic activity e.g. if a country is experiencing high unemployment, its government may cut taxes to stimulate the economy
What are Taxes used for - list 4 things.
•To raise revenue
•To manage the macroeconomy
•To reduce income inequality after tax
•To discourage spending on imports
•To discourage the consumption and production of harmful products
•To protect the environment
When it comes to products with elastic demand it will be Producers/Consumers who bear the most tax burden? Why?
Products with elastic demand it will be producers who bear the most tax burden. As they know they can not pass as much of the tax burden to the consumer otherwise demand will fall radically
List 4 consequences of a recession?
•With lower output, unemployment is likely to rise
•The reduction in output & incomes will be expected to lower living standards
•Investment, including from foreign MNCs, is likely to be discouraged which will endanger future economic growth
•Tax revenue will decline while govt spending on benefits may be increased
•This would increase any budget deficit and reduce any budget surplus
What are the causes of Economic growth in the Long run?
In the LR, an economy can continue to experience economic growth only if the quantity or quality of resources increases
The qty of resources may rise as a result of, for eg, an increase in net investment or the size of the labour force
The qtly of resources may increase due to an improvement in education & training and advances in technology