Topic 2 - The role of Government

What happens to interest rates during a recession?

The Bank of England may reduce interest rates to encourage people to spend more, increase the demand for goods and services.

What are economic policies?

Where Governments set out objectives and how to hit them.

What is a balance of payments?

Record of a country's trade with other counties.

What can a government do to raise money?

Issue gilts and treasury bills.

What are treasury bills?

Short term redeemable securities issued at a discount to their face value.

What is macroeconomics?

A measure of how an economy is doing.

What is microeconomics?

Local economy for people and businesses.

What are freeports?

Areas of the UK where custom rules and taxes apply.

What are the 4 main phases of economies?

Recovery and expansion

Boom

Contraction or slow down

Recession

How is an economy measured?

By the rise and fall in GDP.

What does GDP stand for?

Gross domestic product.

What is GDP?

The value of goods and services produced within the country.

When GDP is at it's highest, what stage of the economy would we be in?

Boom.

What does 2 consecutive quarters of falling GDP mean?

Economic recession.

What happens to interest rates in a recovery and expansion phase?

They are low.

What phase do people have money to spend?

Recovery and expansion.

What can happen during the boom phase?

The bank of England may put interest rates up to control spending.

What happens during the contraction phase?

Spending decreases, demand for goods falls and unemployment rises. (everything slows down)

What is the percentage for 'full employment'?

3-5% unemployment.

What does balance of payments equilibrium mean?

Where the balance of imports and exports are balanced.

What is the Government current account?

Record of the UK trade, both exports and imports.

What is visible trade?

Goods.

What is invisible trade?

Services.

What is the capital account?

The ins and outs of capital.

When would a government use it's foreign reserves?

When the account is in deficit.

What can we do if the UK is in a deficit?

Increase interest rates to encourage overseas investments.

Bring in tariffs and import quotas

What is the fiscal policy?

Where the government looks to influence spending, taxes and borrowing.

What are gilts?

Gilt-edged security, loans to the government which guarantees the income and redemption amounts.

What is the PSNCR?

Public Sector Net Cash Requirement.

Who is responsible for tax?

HMRC (treasury and chancellor of the exchequer).

What is direct tax?

Tax paid directly by an individual or business.

What is indirect tax?

Tax added onto products and services.

How long does someone need to be in the UK to be considered as a UK tax payer?

183 days.

What is a double tax agreement?

Where people wouldn't be taxed twice in the UK and another country.

What is income tax?

Tax paid directly to HMRC on salary or savings.

What is a national insurance contribution?

An additional tax which funds government spending.

What are class 1 NICs?

Paid by employers and employees.

What are class 3 NICs?

Voluntary payments made if people wish to be entitled to state benefits later on.

What are class 4 NICs?

Paid by the self-employed on profits over a certain amount.

How do class 4 NICs work?

They are paid on a percentage of profits and paid via self assessment.

What is capital gains tax?

A tax which is payable on the disposal of certain assets including shares, second properties and investments.

What does the term 'disposal' mean in relation to CGT?

The sale or gifting of the asset in exchange for money.

What is exempt from CGT?

Primary home, gilts, cars and personal items valued under £6k.

How is CGT calculated?

The purchase price and selling costs can be deducted from the overall price.

What is inheritance tax?

A tax payable on the value of someone's estate when they die.

What is included in an estate for IHT?

All of someone's possessions minus their debts.

What is the nil-rate band for IHT?

£325k

How much IH would be payable on the amount over the nil-rate band?

40%

What is the residence nil-rate band?

£175k or the property value if it's lower.

For the residence nil-rate band to apply, who must the property be left to?

A lineal descendant.

What happens with IHT if you're married?

No IHT is payable as they are exempt. They can also transfer their unused nil-rate band if they had nothing to pass over.

What is an annual gift exemption?

Where you can gift up to £3k per year which wouldn't be counted in IHT if that person died.

How would gifts work to be exempt from IHT?

You would need to survive for 7 years after giving the gift for it to be exempt from IHT.

What IHT would need to be paid on a gift given up to 3 years before you died?

40%

When is IHT calculated in relation to gifts?

Gifts are calculated and taken out of the value of the estate.

Still learning (55)

You've begun learning these terms. Keep up the good work!