Demand Side Policies

Question 1

Fiscal Policy

Answer 1

The use of government spending, direct and indirect taxation and government borrowing to affect the level of growth of AD, output and jobs.

Question 2

Current Spending

Answer 2

Spending on providing public services

Question 3

Give an example of current spending.

Answer 3

1. Road maintenance
2. NHS salaries

Question 4

Capital Spending

Answer 4

Spending on new public infrastructure.

Question 5

Give an example of capital spending.

Answer 5

1. Building new motorways
2. Flood defence schemes.

Question 6

What is a progressive tax?

Answer 6

More income = higher rate of tax

Question 7

What is a proportional tax?

Answer 7

Everyone pays the same rate

Question 8

What is a regressive tax?

Answer 8

The more you earn the lower the burden. (Rate falls as incomes rise)

Question 9

Monetary Policy

Answer 9

Changing interest rates, the supply of money & credit and exchange rates to influence the economy.

Question 10

Interest Rates

Answer 10

Rewards for saving and the cost of borrowing expressed as a % of money saved or borrowed.

Question 11

What is expansionary monetary policy?

Answer 11

Monetary policy aiming to increase AD such as:

1. Lower interest rates
2. Increased credit supply
3. Weaker £

Question 12

What is Deflationary monetary policy?

Answer 12

Monetary policy aiming to reduce AD such as:

1. Higher interest rates
2. Lower supply of credit
3. Stronger £

Question 13

What is quanitative easing?

Answer 13

When the central bank increase the supply of money via asset purchasing and government bonds

Question 14

What is expansionary fiscal policy?

Answer 14

Fiscal policy aiming to increase AD

Question 15

What is deflationary fiscal policy?

Answer 15

Fiscal policy aiming to reduce AD