pmt pilicy

Question 1

Current spending

Answer 1

Expenditure on public services

Question 2

Capital spending

Answer 2

Spending on infrastructure

Question 3

Welfare spending

Answer 3

Money given to people on welfare, e.g. pensions

Question 4

Direct tax

Answer 4

Tax on income

Question 5

Indirect tax

Answer 5

Tax on spending

Question 6

3 types of tax

Answer 6

Proportional, regressive, progressive

Question 7

2 types of budget deficit

Answer 7

Cyclical
Structural

Question 8

Describe a cyclical budget deficit

Answer 8

Temporary deficit which changes due to the state of the economy

Question 9

Describe the structural deficit

Answer 9

Permanent deficit due to the structure of the economy

Question 10

Difference between national debt and budget deficit

Answer 10

National debt is the total amount of money the government owns
Budget deficit is the difference between money in and out

Question 11

Describe expansionary fiscal policy

Answer 11

Reduction in tax and increase in spending

Question 12

How does expansionary fiscal policy affect AD

Answer 12

Shifts AD to the right

Question 13

Describe the effect of reducing welfare payments

Answer 13

Forces those who are not disabled to work however bad for disabled people

Question 14

Effects of raising the minimum wage

Answer 14

Increases the size of the workforce by incentivising workers. Shifts LRAS right.
However would also cause an increase in costs

Question 15

What is the main limitation of expansionary fiscal policy

Answer 15

Crowding out - high levels of gov expenditure cause a reduction in private investment

Question 16

Describe deflationary fiscal policy

Answer 16

Reducing gov spending and increasing tax

Question 17

Describe monetary policy

Answer 17

Controlling the supply of money within the economy with the goal of influencing inflation

Question 18

How does the bank of England influence MS

Answer 18

QE - quantitative easing
Changing the base interest rate

Question 19

Describe how changing interest rates has an effect on MS

Answer 19

Increases or decreases the reward for saving

Question 20

Disadvantages of using the base rate to influence MS

Answer 20

Takes a long time
If the economy is unstable banks may not give out loans

Question 21

Describe hot money

Answer 21

When foreign bankers put money into UK banks because interest rates are higher in the UK

Question 22

Advantages of hot money

Answer 22

Increases the demand for a currency which increases its value

Question 23

Describe QE

Answer 23

Banks buy back bonds from financial organizations causing an increase in MS

Question 24

When is it suitable to use QE

Answer 24

When inflation is low

Question 25

What are the results of QE

Answer 25

Increases MS Causes inflation

Question 26

Why is QE different from printing money

Answer 26

Financial organizations act as intermediates so the effects are limited

Question 27

Why are banks forced to change IR when base rate changes

Answer 27

Banking is a competitive sector

Question 28

Describe a liquidity trap

Answer 28

When a change in IR doesn't affect MS

Question 29

What is inflation targeting

Answer 29

When the central bank sets a goal for what they think inflation should be

Question 30

What is the aim for inflation in the uk

Answer 30

2%

Question 31

Describe SSP

Answer 31

Government policies aimed at increasing the productive capacity of the economy

Question 32

What are the 2 types of SSP

Answer 32

Interventionist Market-based

Question 33

Effects of interventionist policy

Answer 33

Increases both AD and AS Reducers both structural and cyclical unemployment Little or no inflation - AD and AS both increase

Question 34

Effect of interventionist policy on BOP

Answer 34

Reduces the deficit in the current account Improve the state of the financial account

Question 35

Limitations of interventionist policy

Answer 35

Time lags - doesnt work in short term