2.6

Question 1

Macroeconomic Objectives

Answer 1

Economic growth
Low unemployment
Low/Stable inflation
Balance of payments equilibrium on the current account

Question 2

Monetary Policy

Answer 2

Used by government to control the flow of money using quantitative easing and interest rates

Question 3

Fiscal Policy

Answer 3

Uses government spending and taxation to influence AD

Question 4

Monetary Policy instruments

Answer 4

1 Bank decreases interest rates
2 Consumption and investment increase due to lower cost of borrowing
3 Mortgage payments decrease so consumers have more disposable income increasing consumption
4 Lower interest rates reduce incentive for investors to hold money in british banks so demand for pound falls so exports are cheaper and imports are expensive

Question 5

Quantitative easing

Answer 5

used by banks to help stimulate economy when monetary policy is no longer effective

Question 6

Quantitive easing steps

Answer 6

1 Banks buy government bonds
2 They then use them to buy bonds from investors increasing the amount of cash flowing
3 Encouraging more lending since cost of borrowing is lower
4 This leads to more investment and more spending leading to economic growth

Question 7

Expansionary fiscal policy

Answer 7

Aims to increase AD Governments increase spending or reduce taxes leads to worsening of the government budget deficit meaning governments have to borrow to do this

Question 8

Contractionary fiscal policy

Answer 8

Aims to decrease AD governments decrease spending and increase tax reducing consumption improving the government budget deficit

Question 9

What do Market policies do

Answer 9

limit intervention of the government and allow the free market to eliminate imbalances

Question 10

Market Based Policies

Answer 10

Reduce tax encouraging spending and investment
Privatizing public sector firms compete in a competitive market
Remove or reduce minimum wage allows free market forces to allocate wages

Question 11

Interventionist policies

Answer 11

Stricter government competition policy ensures smaller firms can compete
Governments could subsidies the relocation of workers and training
Government can spend more on education, healthcare and infrastructure

Question 12

Interventionist policies

Answer 12

Stricter government competition policy ensures smaller firms can compete
Governments could subsidies the relocation of workers and training
Government can spend more on education, healthcare and infrastructure