Monetary Policy Flashcards

1
Q

What is monetary policy

A

Monetary policy involves making decisions about interest rates, money supply and exchange rate

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2
Q

Who controls monetary policy in UK

A

Bank of England more specifically MPC (monetary policy Committee)

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3
Q

What is expansionary monetary policy

A

When AD grows, interest rates fall, money supply rise and exchange rate falls, government spending rises, unemployment falls

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4
Q

What is contractionary monetary policy

A

When AD falls as Interest rates rise, money supply falls, exchange rate rises, government spending falls, unemployment rises

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5
Q

How do high interest rates affect the economy

A

AD will fall as consumption, investment (Borrowing more expensive)

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6
Q

What is money supply

A

money supply measures the total amount of money in the economy at a particular time.

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7
Q

How does money supply factor inflation

A

Rapid growth in the money supply can cause inflation, and a rapid fall in money supply can cause a recession

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8
Q

Consumer prices index (CPI)

A

Measures the average cost of living

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9
Q

Deflation

A

Deflation is a rise in the real value of money over time but makes the general price level fall.

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10
Q

What government objectives are archived when interest rates are high

A

low inflation, price stability, increased GDP and more distribution of wealth.

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11
Q

What government objectives are achieved when interest rates are low

A

sustainable growth, unemployment falling and exports rising.

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12
Q

balance of payments definition

A

The difference between all the money entering and exiting the country in a defined period

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13
Q

What is budget deficit

A

A budget deficit occurs when government spending is greater than tax revenues.

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14
Q

What can reduce the deficit

A

tax increases or cuts in government spending or a period of GDP growth which brings about a rise in direct and indirect tax revenues.

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15
Q

What are the different accounts in the balance of payments

A

Current account (exports and imports trade)

Financial account (investments)

Capital account (funds in buying assets such as land)

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