CeMAP 1 UKFR 20/21 - Unit 1 - Topic 2 Economic Policy and Financial Regulation Flashcards
What policies do the government use to achieve economic objectives that affect the financial services industry?
- Monetary Policy
2. Fiscal Policy
What are the 4 key macroeconomic objectives?
Price stability
Low unemployment
Stable economic growth
Balance of payment equilibrium
What do macroeconomic objectives and microeconomic objectives concern?
Macroeconomic gives a picture of the economy as a whole, whereas microeconomic concern individual firms or consumers.
Define Inflation
A general rise in prices - from too much money chasing too few goods (high demand, low supply). Growth in supply of money exceeds growth of real goods and services.
What is disinflation?
A fall in the rate of inflation i.e. prices are still rising but not as quickly as they were.
Define deflation
A general fall in the price of goods and services, meaning the inflation rate is below zero (negative).
What is price stability (key macroeconomic objective)?
Involves a low and controlled rate of inflation, this doesn’t mean that zero inflation is desirable, as steady growth can stimulate investment which is good for the economy.
How is low unemployment achieved?
Involves expanding the economy so that there is more demand for labour, land and capital.
What is balance of payments equilibrium?
Where expenditure on imports of goods and services is equal to exports going abroad. Currency is linked to the balance of payments, and the governments aim is to keep currency stable. Not so high that exports will not be discouraged but not so low that inflation will rise.
What is satisfactory economic growth?
Where the output of the economy is growing in real terms over time and the standard of living is improving.
