Tax revenues exceed government spending which can be used to pay some of the national debt
Central Bank Policy Interest/ Monetary Policy Rate
The official lending rate for loans set by a nation’s central bank e.g. the Bank of England or the European Central Bank.
Corporation Tax
A tax on the profits made by companies
Cyclical Budget Deficit
The size of the deficit is influenced by the state of the economy: in a boom, tax receipts are relatively high and spending on unemployment benefit is low.
Discretionary Fiscal Policy
Deliberate attempts to affect the level and growth of AD using changes in government spending, taxation and borrowing.
Direct Taxation
Taxes levied on streams of income and profits
Exchange Rate Index
The trade-weighted external value of a currency.
Excise Duties
Indirect taxes levied on specific goods, typically alcoholic beverages, tobacco and fuels.
Expansionary Monetary Policy
An effort to boost aggregate demand, output and jobs –includes lower interest rates.
Expenditure-switching Policies
Policies designed to ‘switch’ expenditure from imports to domestic goods to improve the balance of payments and stimulate GDP.
Fine-tuning
Changes in monetary or fiscal policy designed to gradually manage the level of AD and prices
Fiscal Austerity
Decisions by a government to reduce the amount of borrowing
Global Financial Crisis
A severe crisis that caused a global economic downturn resulting in bail outs and other fiscal measures to prevent the collapse of the world financial system
Household Benefits Cap
Welfare reform which limits total benefits at £500 weekly for a family and £350 weekly for a single person
Import Tariff
A tax on imports that may be ad valorem (%) or a specific tax
Marginal Rate of Tax (MRT)
The rate of tax on the next unit (£1) of income earned.
Monetary Policy Committee (MPC)
Bank of England committee of nine people (including the Governor) that meets every month to review the economy and set monetary policy interest rates for the UK
National Debt
A government's total outstanding debt
Negative Interest Rate
An interest rate that is below zero. For real interest rates, this can occur when the inflation rate is higher than the nominal interest rate.
Office of Budget Responsibility
A non-departmental public body that provides independent economic forecasts and analysis of the public‘s finances.
Patent Box
A reduced rate of Corporation Tax applied to profits from patents to stimulate research and innovation and improve the supply-side of the economy.
Progressive Tax
The marginal rate of tax rises as income rises
Proportional Tax
When the marginal rate of tax is constant leading to a constant average rate of tax.
Quantitative Easing (QE)
The introduction of new money into the national supply by a central bank eg. to buy financial assets
Regressive Tax
The rate of tax paid falls as incomes rise
Structural Budget Deficit
The part of the deficit which is not related to the state of the economy.
Tax Burden
Measures total tax revenues as a % of GDP
Time Lags
The time it takes for one change
Transmission Mechanism
How a change in interest rates affects the behaviour of economic agents and thus leads to changes in AD, employment and inflationary pressures
Welfare Cap
Limit on the amount that UK government can spend on certain social security benefits and tax credits -excluding pensions and Jobseekers’ Allowance.
Ease of Entry
The ease with which a firm can enter a market to profit thus increasing competition and creating jobs
Geographical Immobility
Barriers to people moving from one area to another to find work.
Immobility of Labour
Barriers to the movement of people between areas and between jobs.
Occupational Immobility
Workers having the wrong skills for available job vacancies. This can be overcome by giving labour transferable skills.
Poverty Trap
A disincentive to look for work or work longer hours because of the effects of the tax and benefits system.
Pro-market Supply-side policies
Policies focus on reducing the size of the state and extending the role of market forces in allocating scarce resources.
Relative Poverty
The extent to which a household's financial resources fall below an average income threshold for the economy.
Interventionist Supply-Side Policies
When a government believes that active intervention in markets can help achieve increased productive capacity and competitiveness.
Phillips Curve
Shows a trade-off between inflation and unemployment. A demand-side policy to reduce unemployment could conflict with price stability.