Government Explanation Other Information Policy Fiscal Policy Governments raise money to The main taxes are: spend on things such as schools, Direct taxes This is any hospitals and roads from taxes on Income tax change by the individuals and businesses. This is Corporation tax government to known as Fiscal Policy. taxes or Indirect taxes government VAT spending. Import Duties and Tariffs Monetary Policy An interest rate is the cost of Increasing interest borrowing money. Monetary Consumers and Business will less as This is changes in policy is used to set the interest their debts will be more expensive interest rates by rate. Changing the interest rates reducing their disposable income. This the government can help control spending (and reduces inflation as there is less demand. and the central this means helping reduce Consumers and Businesses will borrow less bank of a inflation if it’s too high or as borrowing money becomes more country. encourage economic growth if it expensive. This means they will buy less. has slowed down) Decreasing interest rates: Consumers and Businesses will spend more as their debts will be cheaper meaning they have more disposable income. This helps economic growth. Consumers and Business will morrow more as borrowing money becomes cheaper. This means they have more money to spend (particularly on large items) Supply Side Policy Privitatisation moving government – industries into the private sector (e.g. In the UK electricity and gas services used to
Government Policy Explanation Other Information Fiscal Policy This is any change by the government to taxes or government spending. Governments raise money to spend on things such as schools, hospitals and roads from taxes on individuals and businesses. This is known as Fiscal Policy. The main taxes are: Direct taxes Income tax Corporation tax Indirect taxes VAT Import Duties and Tariffs Monetary Policy This is changes in interest rates by the government and the central bank of a country. An interest rate is the cost of borrowing money. Monetary policy is used to set the interest rate. Changing the interest rates can help control spending (and this means helping reduce inflation if it’s too high or encourage economic growth if it has slowed down) Increasing interest Consumers and Business will less as their debts will be more expensive reducing their disposable income. This reduces inflation as there is less demand. Consumers and Businesses will borrow less as borrowing money becomes more expensive. This means they will buy less. Decreasing interest rates: Consumers and Businesses will spend more as their debts will be cheaper meaning they have more disposable income. This helps economic growth. Consumers and Business will morrow more as borrowing money becomes cheaper. This means they have more money to spend (particularly on large items) Supply Side Policy Privitatisation – moving government industries into the private sector (e.g. In the UK electricity and gas services used to
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