Ch22 Fiscal Policy

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What is fiscal policy?

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The use of taxation and government spending to manage aggregate demand in order to achieve a government’s macroeconomic aims.

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What is a government’s budget?

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An annual statement of plans for its spending and revenue from taxation.

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What is the national debt?

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The accumulated government debt that has built up over time.

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What is an indirect tax?

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A tax charged on the sale of goods and services, such as a General Sales Tax (GST).

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What is a direct tax?

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A tax charged on income and wealth, such as income tax.

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How are indirect taxes collected?

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Collected by the sellers of goods and services that are taxed, and the receipts are sent to the government.

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How are direct taxes paid?

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Paid to the government by the person or business responsible for the tax.

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What is a progressive tax?

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A tax where the rate increases as a person’s income increases.

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What is a regressive tax?

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A tax that takes a higher percentage of income from people on low incomes compared to those on higher incomes.

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What is a proportional tax?

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A tax with a fixed percentage rate.