Fiscal Policy By the end of this session, you:By the end of this session, you: –Must know the key terms associated with fiscal policy. –Should understand the difference between expansionary and contractionary fiscal policy. –Could be able to predict whether or not a budget deficit poses a problem.

Match the Definitions The government’s annual announcement of changes to its planned levels of spending and taxationThe government’s annual announcement of changes to its planned levels of spending and taxation The proportion paid in tax falls as income increases.The proportion paid in tax falls as income increases. People or firms with the same income and/or financial circumstances pay the same amount of tax.People or firms with the same income and/or financial circumstances pay the same amount of tax. When taxes are earmarked for a specific purpose eg Labour 1990s (education)When taxes are earmarked for a specific purpose eg Labour 1990s (education) Taxes should be linked to the benefits received by taxpayers.Taxes should be linked to the benefits received by taxpayers. The proportion of income paid in tax stays the same as income increases.The proportion of income paid in tax stays the same as income increases. The characteristics of a ‘good tax’ (Adam Smith).The characteristics of a ‘good tax’ (Adam Smith). The amount people or firms pay is based upon their ability to pay.The amount people or firms pay is based upon their ability to pay. Modern list of characteristics of a ‘good tax’.Modern list of characteristics of a ‘good tax’. The proportion paid in tax increases as income increases.The proportion paid in tax increases as income increases. Proportional taxProportional tax Principles of taxationPrinciples of taxation Benefit principleBenefit principle Canons of taxationCanons of taxation Progressive taxProgressive tax The BudgetThe Budget HypothecationHypothecation Horizontal equityHorizontal equity Vertical equityVertical equity Regressive taxRegressive tax

UK Debt Debt Clock Debt Clock

18 th November 2011

Find this out 1.What is a balanced budget? 2.What is the difference between expansionary and contractionary fiscal policy? 3.Use a diagram to show the difference between a cyclical deficit and a cyclical surplus. 4.Explain one example of an automatic stabiliser. 5.Choose two reasons why a budget deficit may pose a problem: 1.Explain each reason 2.Evaluate each reason