Chapter 1E - The Role of Government

Question 1

What are the main economic effects of high taxation?

Answer 1

• reduces the ability of consumers to spend and businesses to invest
• slows down growth in the private sector

Question 2

What are the main economic effects of low taxation?

Answer 2

• more money available for private spending and commercial investment
• stimulates economic activity

Question 3

What is are the primary and secondary aims of taxation?

Answer 3

• raise money for Government

- re-distribute wealth from rich to poor via welfare and NHS (depending on the party in power)

Question 4

What products are currently encouraged with tax concessions?

Answer 4

• pension schemes
• ISAs
• certain life assurance policies
• friendly society saving plans
• gains on directly held gilts and corporate bonds
• certain NS&I products

Question 5

True or False: Adding or removing tax concessions influences investment strategy.

Answer 5

True

Question 6

During 2018, how many first time buyers purchased property in the UK?

Answer 6

175,500

Question 7

What additional % of Stamp Duty Land Tax (SDLT) is applied to second homes?

Answer 7

3%

Question 8

How does taxation affect an advisers’ recommendation to different clients?

Answer 8

Different products taxed in different ways to appeal to different classes of people

Question 9

What is Economic Policy?

Answer 9

Government proposal for expenditure, borrowing and interest rates
designed to help the economy

Question 10

What does Fiscal Policy cover?

Answer 10

taxation, borrowing and government spending

Question 11

What does Monetary Policy cover?

Answer 11

interest rates and money supply

Question 12

Whilst the Chancellor defines levels for government spending and borrowing, who controls interest rates?

Answer 12

Monetary Policy Committee (MPC)

Question 13

How does government spending affect the economy different to tax cuts?

Answer 13

Tax cuts could be spent outside of UK, spending can be controlled within

Question 14

How does government borrowing affect the wider economy?

Answer 14

government borrowing reduces money in circulation

when repaid, this injects liquidity and stimulates economic activity

Question 15

What is quantitative easing?

Answer 15

government buys back gilts and bonds from the financial sector to increase liquidity and stabilise

Question 16

What are the two examples of large Quantitative Easing in UK history?

Answer 16

The 2007/08 banking crisis and the 2020 COVID-19 pandemic

Question 17

What does the Gilt Repo Market do?

Answer 17

influence short-term interest rates

Question 18

How many members are on the Monetary Policy Committee (MPC)?
How many external members?
How many times per year do they meet?

Answer 18

• 9
• 4
• 8

Question 19

Why does the Monetary Policy Committee (MPC) have external members?

Answer 19

To benefit from wider thinking and expertise than just BoE

Question 20

Why do the Monetary Policy Committee (MPC) confirm the Interest Rates?

Answer 20

To ensure it is not used for political manipulation

Question 21

What happened to interest rates during the COVID 19 pandemic?

Answer 21

lowest ever rate 0.1

help with economic shock

Question 22

When was the Bank of England founded?

Answer 22

1694

Question 23

Other than interest rates, what can be used to control the economy?

Answer 23

taxation, spending and borrowing

Question 24

What does the UK welfare system cover?

Answer 24

• NHS
• sickness and disability
• unemployment
• tax credits
• State Pension
• pension credits
• NHS funded nursing

Question 25

True or False: The State's level of welfare provision has increased in recent years.

Answer 25

False, it has decreased

Question 26

What is the DWP?

Answer 26

Department for Work and Pensions

Question 27

True or False: There is a mounting body of evidence that points to a future pensions crisis?

Answer 27

True

Question 28

When did the UK move to the 'new State Pension'?

Answer 28

April 2016

Question 29

How many years' of NI contributions are the minimum and maximum considered under new State Pension?

Answer 29

Minimum 10 years, maximum 35 years

Question 30

In what 3 ways did the government stimulate private pension uptake?

Answer 30

Pension Freedoms Auto-Enrolment National Employment Savings Trust (NEST)

Question 31

Government actions like the removal of dividend credits and changes to accounting regulations have caused closures and changes to the benefits of what kind of pension?

Answer 31

Final Salary (Defined Benefit)

Question 32

True or False: Tax relief on Social Care contributions makes it appealing for families to sell the family home in order to fund care?

Answer 32

False - There is a distinct lack of any favourable tax relief

Question 33

What will be the main effect of the UK's ageing population?

Answer 33

Less future taxpayers to support those retired or on benefits

Question 34

What four further actions could be considered to relieve the aging population issue further?

Answer 34

- More compulsory pension laws - Compulsory medical insurance - Tax breaks for health insurance, medical insurance or long-term care - More increases to State Pension Age