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Essay Plan

IDEAS

reduced rate of income tax (percent) : 9


higher rate of income tax (percent) : 45
basic rate threshold (?pa) : 2,000
personal allowance (?pa) : 5,000
Value Added Tax : 18
base rate of interest : increase by 1/2 point
department of health : cut by 5%
department for education and employment (DFEE) : increase by
25%
the ministry of defence : cut by 10%
basic state pension : 78
child tax credit: family element : 12

Reduced rate of income tax (percent): 9

Companies with low income, by reducing the percentage of income tax


taken it allows them to have more disposable income (WHAT DOES IT
MEAN TO HAVE MORE DISPOSABLE INCOME)

Higher rate of income tax (percent): 45

Increasing this from 40 to 45 enables the rich to be taxed a higher


amount meaning this additional money can fund the rise in education
needed for future economic growth

Basic rate threshold: 2,000

Raising this enables people will low income the ability to have more
disposable income

Personal allowance: 5,000

Raising enables low income people to have more disposable income

VAT: 18

WHAT DOES A VAT INCREASE DO FOR THE ECONOMY

Base rate of interest: increase by point

If you increase the base rate then you will have more foreign interest
attracted and are more likely to want to invest in GBP which would
therefore increase the exchange rate

Department of health: cut by 5%

This is done to be able to partially fund the increase of education to keep


the growth of economy steady and to enable future growth of the
economy
Reasons for an increase in funding for education and employment:
- CAPITAL Generally means more production GROWTH
- Technological progress ATM the most important this is deemed
incredibly important and is dependent on skills and therefore
education is important to build those necessary skills
- Supply-side policies
FISCAL promoting education skilled workforce

MAIN POINTS

If aggregate demand falls so does growth


Inequality of income Often rewards the strong an gives little to the
economically weak (TRYING TO AVOID THIS)
More inflation the less a persons income is worth e.g. pension
Economic growth means higher incomes
Cost increases PUSH inflation up
If G changes taxes, can push up firms costs
Changes in interest rates can also affect a firms costs
Effect of cost increases shift AS to left
PHILIPS CURVE Relationship between unemployment and inflation
Any attempt to decrease unemployment will increase inflation

ESSAY PLAN
Intro
Key Government aims:
-

The government hopes to create a stable economy


Economic growth is always a high objective for any government as it
creates higher levels of income for its people
Achieving high economic growth can be an extremely tricky task due to
the fact that it is affected by a lot of different elements
The rate of inflation is a key economic target due to be low as it allows
consumers to be less wary when spending their income
Exchange rate is also another key aspect to the economy

INFLATION
Inflation Intro
-

Interest rates keep inflation at bay


It is ideal to keep inflation around the 2% range which has been desired
by the UK government to years and is a consistent target
This can be seen in my model solution (FIGURE NO. SHOULD BE
HERE) where the inflation is kept at an average of 2.04%. Although the
inflation is not at a steady this can be explained by the other economic
decision I have made when adjusting the policies inside the model

Inflation and Unemployment (PHILLIPS CURVE)


-

The Phillips curve can easily explain the trade-off between


unemployment and inflation
Any attempt to decrease inflation will cause an increase in
unemployment (theoretically) due to their negative relationship
(PLOT a Phillips curve from the data provided in the model)

Inflation and money [supply]


-

It is arguable that the main cause of inflation is excessive money


supply growth
Case study (Milton Friedman)
If money supply grows too fast it can increase inflation

Demand-pull inflation and cost-push inflation


-

EXPLAIN USING AS AND AD

EXCHANGE RATES
Exchange rates intro
-

The ability for a government to increase exchange rates enables