1.5 Assessment Flashcards
What is monetary policy ?
The Bank of England’s decisions about interest rates, in order to support the economy and control inflation rates.
What is fiscal policy ?
It is the government decisions about taxes and public sector spending
What is inflation ?
It is the rate at which prices in the UK increase each year, shown as a percentage.
Why is a high inflation rate bad for businesses?
A high rate of inflation is bad for businesses because:
• It increases the costs of the goods that they are buying
• It causes demand to fall if people’s wages are not rising as quickly as the price of the products.
What is interest rate?
The cost of borrowing money, as a percentage of the amount borrowed.
Why are high interest rates bad for businesses?
A high rate of interest is bad for businesses because:
• It increases the costs of businesses with a bank overdraft or a bank loan
• It decreases demand for their products because people have less disposable income
Why are low interest rates good for businesses?
A low rate of interest is good for businesses because:
• It decreases the costs of businesses with a bank overdraft or a bank loan
• It increases demand for their products because consumers have more disposable income
What is an exchange rate?
The value of one currency expressed in terms of another currency.
If the exchange rate is £1 = €1.20
What is £10 in €
10 x 1.20 = 12
£10 = €12
Why is unemployment bad ?
It is bad because high levels of unemployment mean that the economy will not perform so well.
What is disposable income ?
Disposable income is the amount of money you have left over after paying off all of your essential bills.
