Macroeconomics Flashcards

Question

What is national debt

Answer 1

The accumulation of government borrowing over a long period of time to cover deficit

Answer 2

Causes- constraint future spending Rise in interest rates Hard for banks to loan Solutions- Austerity measures Increase pension age Expand tax base

Answer 3

QE is when the government creates money to electronically buy assets from financial institutions to promote lending and to increase the money supply

Answer 4

When the value of asset increases above its underlying value e.g house prices

Answer 5

Financial policy committee- Instruct commercial banks on reserves Reduce risks Financial conduct authority - protect consumers Integrity in system Promote competition Prudent regulation authority - monitor banks

Answer 6

j curve | Deprecation will only be effective if the PED is less than 1

Answer 7

Promote the increase of supply with the factors of production

Answer 8

Comprised of tax revenues and government expenditure

Answer 9

``` By borrowing Austerity measures Taxes increased - too high discourage Caps to amount of welfare benefits Harsher rules on tax - tax avoidance Less government spending Promote economic growth Default the debt ```

Answer 10

Involves deliberate changes in government expenditure and taxes with the intention of influencing aggregate demand Change the amount of spending and taxation to stimulate the economy Government can influence the size of the circular flow by changing the government budget, and spending and taxes in areas which need stimulating

Answer 11

Aims to increase AD, governments increase spending or reduce taxes to do this, it leads to worsening of the government budget deficit and it means governments have to borrow more to finance this. Aims to decrease AD, governments cut spending or raise taxes which reduces consumer spending, leads to improvement of the government budget deficit

Answer 12

Governments might have imperfect information - inefficient spending Time lag Crowding out in the private sector Difficulties paying back how much the government spend- debt

Answer 13

Used by the government to control the money flow of the economy, done with interest rates and quantitive easing, conducted by the BofE

Answer 14

Alters interest rates to control the supply of money Target 2% Bank controls base rate Lender of last resort

Answer 15

Help stimulate the economy when standard monetary policy is no longer effective Used when inflation is low Method to pump money directly into the economy Bank bought assets in the form of government bonds using the money they created, then used to buy bonds from investors increases amount of cash flowing into the financial system Encourages lending to firms and individuals, since cost of borrowing is lower Encourages more investment more spending and high growth, however could be high inflation

Answer 16

Banks might not pass base rate onto consumers Consumers might be unable to borrow because banks are unwilling to lend Interest rates will be more effective at stimulating spending and investment when cc is high

Answer 17

The supply of money meets the demand for money at P, Q. A rate of interest above P means the supply of money exceeds demand, this causes rate of interest to fall, the interest rate remains at equilibrium unless there the demand for or supply of money changes, A shift in supply of money to the right show a liquidity trap, this is when a change in the supply of money does not change the interest rate, monetary policy cannot be used to influence consumption and investment

Answer 18

Information failure | When one party to an economic transaction possesses greater material knowledge than the other party

Answer 19

Situation where there is a risk that the borrower does things that the lender would not deem desirable, because it makes the borrower less likely to repay the loan

Answer 20

Act of firms coming together to interfere in a market, with the intention to stop it working as it supposed to, so that firms can gain an unfair advantage

Answer 21

``` Inflation Interest rates Speculation Other currencies Government finances Balance of payments International competitiveness Government intervention ```

Answer 22

Occurs when currency is devalued, as imports are more expensive, at first total value of imports increase which worsens the deficit Value of exports decreases reduction in the trade deficit Time lag in changing the volume of exports and imports Due to trade contacts and price inelasticity of demand for imports in the short run

Answer 23

When firms know what value the currency is relative to another currency, it allows them to plan investment Monetary policy focused target to work towards Balance of payments should not automatically adjust to economic shocks

Macroeconomics Flashcards

(47 cards)