MACRO - Unit 9 Flashcards
What is monetary policy?
the manipulation of the rate of interest, the money supply and exchange rates to influence the level of economic activity
What is the primary objective of a monetary policy?
maintain a low level of inflation (2%)
How does monetary policy work?
every month the bank decide the level of interest rates
What is the responsibility of the MPC?
setting interests rates
What are the other tools used in monetary policies?
money supply
rules on bank lending and credit agreements
quantitative easing
What is quantitative easing?
to increase the base supply of money in the banking system and encourage banks to lend at cheaper interest rates
What is fiscal policy?
manipulation of government spending, taxation and government borrowing to influence the level of economic activity
Why are fiscal policies used?
- keep inflation on target (2%)
- stimulate economic growth and employment during times of recession
- maintain a stable economic cycle that minimises “boom and bust”
What are the methods involved in expansionary fiscal policy?
- cutting taxes
- raising government spending
- increasing the budget deficit
What are the methods involved in contractionary fiscal policy?
- increasing taxes
- cutting government spending
- cutting the budget deficit
What is public expenditure?
government spending to pay for the needs of society
What is direct tax?
imposed on the income of individuals or profits of businesses
What is indirect tax?
imposed on goods or services
What is proportional tax?
all workers will pay the same percentage of their income as tax
What is a budget deficit?
occurs when a government receives less income through tax receipts and other government revenue than it spends
