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Economics IGCSEPDF 85
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Effective Definitions
FiscalPolicy: The use of government
spending and taxation to influence the
level of economic activity and achieve
macroeconomic aims.
Budget: The government's plan for its
revenue (mainly taxation) and expenditure
(spending) over a financial year.
Budget Deficit: Occurs when Government
Expenditure (G) is greater than
Government Revenue (T) (G > T). The
government must borrow to finance the
difference.
Budget Surplus: Occurs when
Government Revenue (T) is greater than
Government Expenditure (G) (T > G). The
government pays off debt.
Notes: Reasons for Government
Spending
●
Notes: Reasons for Taxation
●
To Provide Public and Merit
Goods:
likenational defence, police,roads,
schools, and hospitals.
Fundingessentialservices
● To Redistribute Income: Providing
welfare benefits, pensions, and
●
●
●
●
●
unemployment pay to reduce
inequality.
To Manage the Economy: Using
spending as a tool to influence
aggregate demand (e.g., funding
infrastructure projects to boost
economic growth).
To Support Key Industries:
Providing subsidies or grants to
essential industries like agriculture
or renewable energy.
ToRaiseRevenue: The primary
purpose: funding government
expenditure on public and merit
goods.
To Redistribute Income:
Implementing progressive taxes
(higher rates for the rich) to reduce
income inequality.
To Discourage Harmful Activities:
Imposing taxes on demerit goods
(e.g., tobacco, alcohol) or negative
externalities (e.g., carbon tax) to
reduce their
consumption/production.
To Manage the Economy: Using
tax changes to influence Aggregate
Demand (AD) (e.g., raising taxes to
fight inflation).