Economics Y11

What is government revenue?

Money received by the government to finance public spending

What is government expenditure?

All the money spent by the public sector on providing public goods, services, and social protection

What is a government budget deficit?

Government expenditure is greater than government revenue. Therefore they have to borrow. In an annual period.

What is a direct tax and an example?

Taxes based on income e.g. income tax, national insurance contributions

What is an indirect tax and an example?

Taxes on spending e.g. VAT, excise duties

What is the difference between direct and indirect taxation?

Direct taxes are paid directly by individuals/firms to the government, whereas indirect taxes are charged on spending and collected by businesses

What is a progressive tax?

Taxation which increases as a proportion of the citizens total income as their income increases.

What is a regressive tax?

Taxation which decreases as a proportion of a citizen’s total income as their income increases.

Why can indirect taxes be regressive?

Lower-income households tend to spend a larger proportion of their income, so the tax can take up a larger percentage of their income

How can taxation influence behaviour?

Higher taxes on goods such as tobacco or alcohol can increase their price and discourage consumption

How can taxation help reduce inequality?

A progressive tax system takes a greater proportion of income from higher-income households, helping redistribute income

What are two possible effects of higher government spending?

It can improve public services and living standards, but it may also increase the government's budget deficit if revenue does not rise enough

What is economic growth?

An increase in the output of goods and services produced in an economy over time

What is GDP per capita and how is it calculated?

GDP per capita = GDP / population. It measures average output/income per person

What is real GDP?

GDP adjusted for changes in the price level/inflation

Give four causes of economic growth

Increased employment, a more skilled workforce, higher wages/incomes and increased investment

What are the benefits of economic growth?

Higher employment, increased living standards and potentially higher government tax revenue

What are the possible costs of economic growth?

Increased pollution, resource depletion, traffic congestion and potentially greater income inequality

What are the government's main macroeconomic objectives?

Economic growth, full employment, balance of payments equilibrium, redistribution of income, price stability and managing environmental change