Policies

Question 1

What is the monetary policy?

Answer 1

Involves changes in interest rates, the supply of money and credit and exchange rates to influence the economy

Question 2

What is the savings ratio?

Answer 2

Percentage of our income that we save

Question 3

Expansionary monetary policy bullet points?

Answer 3

• to stimulate aggregate demand
• fall in nominal and real interest rates
• measures to expand supply of credit
• depreciation in exchange rates

Question 4

Contractory monetary policy bullet points?

Answer 4

• decrease aggregate demand
• higher interest rates on loans and savings
• tightening of credit supply
• appreciation of the exchange rate

Question 5

What is the LRAS curve?

Answer 5

Shows the productive capacity of the economy

Question 6

What are the two types of fiscal policy?

Answer 6

• Expansionary fiscal policy (increase AD)
• Contractionary fiscal policy (decrease AD)

Question 7

What is fiscal policy?

Answer 7

The use of government spending and taxation to influence the pattern of the economic activity and affect the level of growth of aggregate demand, output and employment

Question 8

What is council tax

Answer 8

tax people in a council payed directly to the council - based on the value of your house

Question 9

Why do we have taxes (fiscal policy)?

Answer 9

• influence aggregate demand more easily
• redistribute income and wealth
• influence spending patterns
• raise money to finance public services
• to protect jobs in this country

Question 10

What are the ways to finance a deficit?

Answer 10

• issue bonds to hot money sources
• sell govt owned assets
• surpluses from previous years

Question 11

What are indirect taxes?

Answer 11

Taxes on spending
- VAT
- tariffs on imports
- petrol duty

Question 12

What are direct taxes?

Answer 12

Taxes on income
- income tax
- corporation tax
- inheritance tax
- national insurance

Question 13

What are the types of tax?

Answer 13

• progressive
• regressive
• proportional

Question 14

What is a progressive tax?

Answer 14

% rate of tax rises as income rises

Question 15

What is a regressive tax?

Answer 15

% rate of tax falls as income rises

Question 16

What is a proportional tax?

Answer 16

% rate of tax is constant

Question 17

What is a trade off?

Answer 17

where one macro objective may be achieved at the expense of another objective

Question 18

What are Adam smiths canons of taxation?

Answer 18

• equitable
• certainty
• convenient
• economic
• flexible
• efficient

Question 19

What are the two ways govt spending can be divided?

Answer 19

• current spending
• capital spending

Question 20

What is current spending?

Answer 20

day to day running of the public sector including raw materials and wages of public sector workers

Question 21

What is capital spending?

Answer 21

used to improve the productive capacity of the nation including infrastructure, schools and hospitals

Question 22

What is the multiplier effect?

Answer 22

a change in one of the components of ad can lead to a multiplied final change in the equilibrium of gdp

Question 23

what is the multiplier effect formula?

Answer 23

K(multiplier) = 1/MPC

Question 24

What is the accelerator effect?

Answer 24

The difference between planned capital investment and the rate of change of national income

Question 25

What are the three sections of the balance of payments?

Answer 25

• the current account
• the financial account
• the capital account

Question 26

What is the current account?

Answer 26

• trade in goods
• trade in services
• net primary income
• net secondary income

Question 27

What is the financial account?

Answer 27

• transactions in financial assets
• investment flows
• government transactions

Question 28

What is the capital account?

Answer 28

• transfer of assets by individuals

Question 29

What is an improvement in the BoP?

Answer 29

Reduction in a deficit, increase in a surplus, deficit becomes a surplus

Question 30

What is a deterioration in the BoP?

Answer 30

Increase in a deficit, reduction in surplus, surplus becomes deficit

Question 31

What is productive capacity?

Answer 31

The amount of goods and services that the economy is capable of producing. When this productive capacity increases me call it long run growth.