Government spending and taxation, interest rates, and how policy affects the economy.
Fiscal policy
The government's use of spending and taxation.
- Expansionary: more spending / lower taxes → boosts demand, growth and jobs (but may cause inflation and a budget deficit).
- Contractionary: less spending / higher taxes → reduces inflation.
Taxes: direct (on income/profits, e.g. income tax) and indirect (on spending, e.g. VAT). Taxes can be progressive (higher earners pay a higher %), proportional or regressive.
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