Economy Flashcards
What is the Economy?
Performance of the government is measured on how well it handles the economy
Government get the blame when things go wrong in the economy (elections can be won or lost on economy)
What is Inflation?
The rate at which the prices of a given basket of goods rise over 12 months
Two measures: RPI and CPI (sometimes household price index too)
Office of National Statistics monitors the price of ‘goods’ in a basket
Price in which they have risen is averaged to create a rate of inflation
What is Growth?
The rate at which the economy is expanding indicated by output, profits, and investment
What is a recession?
Period of negative economic growth over 6 months (two consecutive quarters)
What is Gross Domestic Product?
The value of goods and services produced in the UK
What is Gross National Product?
The value of goods and services produced by UK firms
What is national debt?
How much the nation owes to creditors
What is deficit?
Difference between cash raised by government and cash spent on services and interest on borrowing
How is the economy managed?
Monetary policy - Managed by the Bank of England - The UKs independent central bank
Fiscal Policy - Managed by the government’s Treasury Department
What is the treasury?
The government department that controls the nations purse strings, and is the developer and guardian of government spending
PM is technically in charge of finances as “First Lord of the Treasury”
But in practice, it is the Chief Finance Minister – Chancellor of the Exchequer (2nd lord of the treasury) – Jeremy Hunt
Chief secretary to the Treasury – also a cabinet minister
- current Laura Trott
What is the Office for Budget Responsibility?
Provides independent economic data on the state of the economy (holds treasury to account)
Gives an independent view on whether the government’s economic plans will achieve their aims
Ensures government budget figures are accurate and not being manipulated for political ends
What is the Bank of England?
Britain’s central bank - Publicly owned but independent
Governor – Andrew Baily -
Manages money supply
(e.g. Quantative easing (creating money))
Sets interest rates
Monetary policy committee
What are the governments fiscal policies?
Taxation
Manages national debt and deficit
Promoting economic growth
Controlling domestic inflation and unemployment
Allocating cash to spend on services the government is responsible for
How are fiscal policies held to account?
Institute for Fiscal Studies:
Economics research institute
Provides important response and assessment of government fiscal policy
Go-to contact for assessment on whether government policy adds up
Director – Paul Johnson
What is The Budget?
Budget is Chancellor of the Exchequer’s economic statement – to finalise spending plans, a review of economic policy, medium-term forecasts as well as government spending plans and taxation changes
Aims to control inflation, reduce unemployment, stimulate growth, and encourage exports and investment
Presented in parliament and passed as the Finance Act
