Chapter 17 - Economic environment Flashcards
What is Macroeconomic policy?
The way in which a government will manage the economy as a whole
What are the main objectives of Macroeconomic policy?
▪ Achieving a certain level of economic growth e.g. 2% each year
▪ Keeping inflation below a certain level e.g. 3%
▪ Maintaining high levels of employment
▪ Redistribution of wealth and income
What is Aggregate demand ?
The total demand for goods and services in an economy.
What can low aggregate demand lead to?
Unemployment
What can high aggregate demand lead to?
Rise in inflation
What is monetary policy?
Using interest rates to control the supply of money
What does a rise in interest rates do? (2 things)
- Reduce the amount of money people have to spend
- Reduce aggregate demand
What does a fall in interest rates do? (2 things)
- Increase the amount of money people have to spend
- Increase aggregate demand
What is fiscal policy?
Using the relationship between taxation, government spending and borrowing to control demand in an
economy
What does a reduction in taxation and increase government spending lead to? (2 things)
- Increase in government borrowing
- Increase in aggregate demand for goods and services
What does an increase in taxation and increase government spending lead to? (2 things)
- Decrease in government borrowing
- Decrease in aggregate demand for goods and services
What is demand pull inflation caused by?
Excess demand
What is cost push inflation caused by?
Rising costs e.g. price of imported raw materials risen
What are four ways a government may intervene in the regulation of a business?
Competition policy
Green policies
Government assistance
Corporate governance regulation
What government intervention is described below?
a government can investigate and prevent anti-competitive agreements arising and abuse of dominant position.
Competition policy
What government intervention is described below?
Externalities is a term which refers to wider costs which cannot easily be measured using conventional
accounting techniques. An example is the cost of polluting the environment. A government can legislate to reduce or avoid the impact of these externalities.
Green policies
What government intervention is described below?
Governments can provide grants and subsidies to boost enterprise, encourage innovation and improve the skills of the workforce amongst other things.
Government assistance
What government intervention is described below?
Governments can create a regulatory framework for corporate governance. This helps to improve the control and scrutiny that shareholders can exercise over the actions of directors of the company.
Corporate governance regulation
What does Externalities mean?
Pollution
What are the three main roles of a treasury function?
- Short term management of resources
- Long term maximisation of shareholder wealth
- Risk management
What two things are involved in the below for the treasury function?
-Short term management of resources
- Short term cash management
- Currency management
What two things are involved in the below for the treasury function?
-Long term maximisation of shareholder wealth
- Raising long term finance
- Investment decisions
- Dividend policy
What two things are involved in the below for the treasury function?
-Risk management
- Risk exposure
- Interest rate risk management
- Hedging of foreign exchange risk
What is the formula for Public expenditure?
public expenditure = taxes raised + government borrowing (+ sundry other income)
