Using the Data and Your Economic Knowledge, Assess the View That a Reduction in Income Tax Is the Best Way to Improve the Performance of the Uk Economy in Both the Short Run and Long Run.

1259 Words Jun 29th, 2014 6 Pages
Improvement in the UK economy is usually dependant on the improvement of four major factors, economic growth, balance of payments, unemployment and inflation. This should lead to steady economic growth that would lead to a steady increase in the productive capacity in the economy. Income tax is the percentage of income that people are taxed upon that is given to the government. There are many policies that can be used to tackle these certain goals, for example fiscal and monetary policy. Fiscal is a change in government spending or taxation, an example of fiscal policy is to reduce taxation and thus give consumers more spending power, hopefully increasing economic activity. Monetary policy is centred on interest rates, for example reducing …show more content…
This leads on to an alternative policy to improve the UK economy, monetary policy. Monetary policy is used to alter interest rates to manipulate economic activity in the UK, in this case the Bank of England would reduce or increase the interest rates dependent upon their strategy for improvement in the economy. In this case, according to source F, consumers are encouraged to save due to the unhealthy economy being a result of massive amounts of consumer debt. For example “we are suffering the consequences of a decade of growth fuelled by debt.” And “politicians are encouraging us to save rather than spend money we do not have.” This increase in saving is a contractionary monetary policy designed to reduce consumer spending, an impact upon the economy would be a reduction in inflation, due to decreased demand pull inflation as there is not enough supply for the firms to match the needs of demand that is fuelled by excessive borrowing., the excessive demand drives prices up as there is too much money chasing too few goods. An increase in interest rates also tackles the issue of increased spending and thus an excess of demand in the economy accompanied by debt, as it will give consumers less incentive to borrow as the amount they must pay back will rise, this is also

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