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Year 1 macroeconomics > policy > Flashcards

policy Flashcards

(51 cards)

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1
Q

fiscal policy

A

the use of government spending or taxation to try to achieve the governments policy objectives

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2
Q

expansionary fiscal policy

A

use of fiscal policy to increase aggregate demand

can boos LRAS as a side effect, boosting the productive potential of the economy

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3
Q

contractionary fiscal policy

A

use of fiscal policy to decrease aggregate demand

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4
Q

expansionary fiscal policy goals

A

-boost growth
-reduce unemployment
-increase inflation
-redistribute income

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5
Q

example of expansionary fiscal policy

A

-reduction in income tax
-reduction in corporation tax
-increase in government spending

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6
Q

contractionary fiscal policy goals

A

cools the economy down after high rates of demand pull inflation
-reduce inflation
-reduce budget deficit/ national debt
-redistribute income
-reduce current account deficit

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7
Q

examples of contractionary fiscal policy

A

-rise in income tax
-rise in corporation tax
-fall in government spending

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8
Q

cons of expansionary fiscal policy

A

-demand pull inflation
-currant account deficit
-worsening of gov finances
-crowding out effect (private sector replaced by public sector spending)
-x - inefficiency - gov spending could be wasteful - excess costs
-time lags - time for policy to take into effect

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9
Q

evaluation of fiscal policy

A

-ouput gap size
-size of multiplier
-consumer/. business confidence
-state of gov finances
-long run returns to gov
-laffer curve
-role of automatic stabilisers
-crowding in vs crowding out
-

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10
Q

automatic stabilisers

A

fiscal policy tools to influence GDP and counter fluctuations in the economic cycle
in a boom they will coushin demand so it doesnt overheat
in a recession theyll support output to prevent a deep recession

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11
Q

automatic stabilisers examples

A

-progressive income tax
-welfare benefit

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12
Q

automatic stabilisers in a boom

A

-incomes imcrease, workers are pushed into a higher tax bracjet increasing ART, slowing down consumption

-unemployment low - gov spending on benefits reduces reducing AD

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13
Q

automatic stabilisers in a RECESSION

A

-incomes decrease - workers move into lower tax brackets - lower ART - prevents large drop in consumption

-unemployment high - gov spending on benefits increases

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14
Q

budget deficit

A

where gov spending > tax revenue

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15
Q

structural budget deficit

A

budget deficit at full employment

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16
Q

cyclical budget deficit

A

budget deficit in a recession

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17
Q

national debt

A

total stock of gov debt over time
running a bedget deficit or increase in national debt implies increased gov spending or lower taxes

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18
Q

pros of budget deficit

A

-higher growth, lower unemployment
-benefits of increased G - education healthcare, infastructure
-redistribution of income
-incentives of tax cuts
-crowding in - increased private sector investment

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19
Q

cons of budget deficit

A

-deterioration of gov finances
-inflation conflict
-current account conflict
-crowding out effect
-x - inefficiency

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20
Q

evaluation of budget deficit

A

-state of gov finances
-SR vs LR impacts
-stage of economic cycle
-specific policy used
-consumer/ business confidence
-automatic stabilisers

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21
Q

monetary policy

Study These Flashcards
A

changes to interest rates, the money supply and the exchange rate by the central bank in order to influence AD

22
Q

expansionary monetary policy

Study These Flashcards
A

use lower interest rates to increase AD
-increase inflation
-increase growth
-reduce unemployment

23
Q

expansionary monetary policy transmission mechanism

Study These Flashcards
A

-decrease credit card interest rate - ↑C
-decrease savings rates - ↑C
-decrease mortgage rates - ↑C
-decrease business loans (rates) - ↑I
-weaker exchnage rate - ↑(X-M) - hot money outflow

24
Q

LRAS and expansionary monetary policy

Study These Flashcards
A

increase in investment from decrease in rates of business loans shifts LRAS right vias an increase in quality and quantity of capital

25
contractionary monetary policy
uses higher interest rates to decrease AD -reduce inflation -prevent asset/ credit bubbles -reduce excess debt and promote saving -reduce CA deficit
26
expansionary monetary policy cons
-demand pull inflation -current account deficit -liquidity trap -negative impact on savers -time lags
27
liquidity trap
when consumers and investors hoard cash and refuse to spend, rendering monetary policy ineffective
28
evaluation of expansionary monetary policy
-size of output gap -consumer/business confidence -banks willingness to lend/ pass on the fall cut -size of the rate cut
29
contractionary monetary policy pros
-decrease in inflation -discourage household/ corporation debt -more suitable lending/ borrowing -encourage saving -more affordable housing -reduce CA deficit -flexibility for expansionary monetory policy
30
contractionary monetary policy cons
-lower growth -higher unemployment -impact on indebted -reduces investment -worsening of CA deficit via exchange rate strengthenings
31
supply side policies
policies designed to increase productive capacity of the economy, shifting LRAS right
32
interventionist SSP
-gov spending on education/ training -gov spending on infrastructure -subsidies to firms to promote investment
33
market based SSP
-tax reform - -lower income tax -lower corporation tax -labour market reform -reduce benefits -reduce min. wage -reduce trade union power -competition policy -privitisation -deregulation -trade liberilsation if successful all main macro objectives achieved
34
shifts LRAS right
-increase quality/ quantity of FoP -increase productive efficiency -decrease in LR CoP
35
cons and evaluation of SSP
-no gaurentee of success -cost -time lags -negative staeholder impacts -output gap -need for targeted SSP
36
policies for short run growth
expansionary fiscal policy increase in G or decrease in T) expansionary monetary policy ( decrease in I.R) increase in short run growth by a shift in AD
37
evaluation of policies for short run growth
-conflict of objectives (demand-pull inflation) -gov finances worsening (increase budget deficits and national debt) -consumer/ business confidence - depended on strong confidence -time lags
38
policies for long ruun growth
supply side policies interventionist or market based SSP
39
evaluation of policies for long run growth
-no guarantee of success -cost -time lags -negative stakeholder impacts
40
policies to solve cyclical unemployment
expansionary fiscal policy (increase in G or decrease in T) expansionary monetary policy (decrease in i.r)
41
evaluation of policy for cyclical unemployment
-conflict of objectives (demand-pull inflation) -gov finances worsening (increase budget deficits and national debt) -consumer/ business confidence - depended on strong confidence -time lags
42
how to solve real wage unemployment
-reduce min. wage -reduce strength of trade unions SSP
43
evaluation for solving real wage unemployment
-impact on workers -income inequality
44
gov policies to solve structural unemployment
interventionist SSPs -G on training/ education -subsidies for in work training -G on infastructure -grants or low cost housing market based SSPs -reduce benefits -deregulate hiring/ firing laws
45
policies to solve frictional unemployment
interventionist SSPs -more and better resources for job centres -subsidies to private job agencies -G on infastructure market based --reduced benefits -
46
evaluation for policies to solve frictional unemployment and structural unemployment
-no guarantee of success -cost -time lags -shareholder impact
47
policies to solve demand pull inflation
contractionary monetary policy ( increase i.r.) contractionary fiscal policy (decrease G or increase T)
48
evaluation for policies to solve demand pull inflation
-conflict of objectives -impact on investment -impact on indebted -strong exchange rate and CA deficit
49
policies to solve cost push inflation
-implement/ reduce inflation target -reduce VAT/ subsidies to firms -- cost -intervene in FOREX market to strengthen exchange rate - costly
50
how to solve high long term inflation rates
SSPs either
51
evaluation to solve longterm inflation or cost push
-cost no guarantee of success -time lags

Year 1 macroeconomics (7 decks)

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