economics paper 2

• what are interest rates

  cost of borrowing and reward for saving
• what will an increase in interest rates do

  encourage saving
• what will a decrease on interest rates do

  discourage saving
• what are two examples of interest rates

  mortgage loan and credit card
• why would low interest rates be insufficient to encourage borrowing

  in times of recession
• why might some banks fail to let firms borrow loans

  they don't have confidence in their ability to pay back
• what is one problem of tax

  tax may be regressive
• what is another problem of tax

  high administration costs in collecting tax
• what two things does subsides positive externalities cause

  supply to shift right and consumer benefits from low price
• what is two problems for subsides

  expensive and increase tax
• what are two benefits of government providing public service

  positive externalities and economics of scale in providing national service
• what two reasons for why government failure can occur

  poor information about type of service to provide and political interference
• what is the main gov tax revenue source

  income tax
• what is income tax

  direct tax on peoples income
• What is direct tax?

  Tax taken from your wage before it’s paid to you
• What is indirect tax?

  Tax paid for by a company
• What’s an example of direct tax

  Income tax
• What’s an example of indirect tax

  VAT
• what is national insurance?

  the money is targeted for Social Security payments
• What is a VAT?

  Value of tax. This is an indirect tax, currently 20% included in muscles and services in the economy.
• What is excise duties?

  Specific taxes on good such as alcohol
• What is corporation tax?

  Tax on company profits
• What is stamp duty?

  Tax on buying a house
• What is council tax?

  Tax local authorities collect related to the value of your home and wealth
• What is two purposes of tax?

  Raise revenue for government to spend on public services and this encourage consumption of certain goods
• What is progressive tax?

  Increase in tax for higher income earners
• What is regressive tax?

  increase in tax for lower income earners
• What is proportional tax?

  Tax, the same for everyone regardless of income
• What are two impacts of an increase in income tax?

  Increase revenue for government and makes tax system more progressive
• what three things does governments spend tax revenue on?

  Healthcare, education and National defence
• What is real government spending

  Spending levels adjusted for inflation
• what is one impact of higher government spending?

  Providing important public services, such as healthcare and education
• What is another impact of higher government spending?

  Investment in this infrastructure, such as public transport providing a stronger infrastructure for the economy
• What is one negative of government spending

  No profits
• What are three examples of macro economic objectives

  Unemployment, low, inflation, sustainable economic grace
• How does an increase in economic rate affect inflation?

  Increases inflation
• how does high demand affect firms?

  Firms look closer to producing at full capacity
• How does excess demand affect firms?

  Increase price
• With higher economic growth firms will be able to do what?

  Employment workers leading to lower unemployment and increase wages could cause inflation
• If economic growth is sustainable and there is an increase in productive capacity, then what might not occur

  Inflation