Fiscal & Monetary Policy

• What is Fiscal policy?


  involves the use of government spending, taxation and borrow to affect the level and growth of economic activity
• What are the government tax’s for?

  -raise revenue

  -managing aggregate demand

  -address market failure and environmental targets
• What are the 2 types of taxation?


  direct - levied on income, wealth and profit. e.g. income tax

  indirect - levied on spending by consumers on goods and service. e.g. VAT
• What are the 3 main areas of spending?


  -transfer payments - benefits

  -current spending - state-provided goods

  -capital spending - infrastructure
• Why is government spending so significant


  -provide welfare support

  -redistributing income within society

  -used as a tool to manage GDP
• What is monetary policy?


  the management of the supply of money in an economy through interest rates.

  interest rates - a reward for saving and the cost of borrowing expressed as a percentage
• What might happen if interest rates start to fall?


  -cost of servicing loans

  -consumer confidence increase - more spending

  -effective disposable income rises

  -business investment should be boosted

  -housing marketing effects

  -exchange rates and exports