ROLE OF GOVERNMENT

Question 1

national income

Answer 1

the sum total of all final goods produced in an economy during a given time period

Question 2

GDP

Answer 2

Gross Domestic Product is the total amount of goods and services produced by DOMESTICALLY LOCATED means of production in a year REGARDLESS OF OWNER

Question 3

GNP

Answer 3

Gross national product is the total amount of goods produced by means of DOMESTICALLY OWNED production in a year REGARDLESS OF THE LOCATION

Question 4

Macroeconomic goals every country should achieve (5)

Answer 4

Economic growth (GDP and GNP), Price stability (low and stable rate of inflation), low levels of unemployment, external stability (stable exchange rate, import/export balance), income distribution

Question 5

Basic factors affecting economic growth (monetary) (4)

Answer 5

increase in investments, entrepreneurship (innovations), export and import, tourism

Question 6

Basic factors affecting economic growth (natural, legal and social)

Answer 6

Natural resources, improvements in the quality of workforce, infrastructure, social and legal institutions (ownership of land), political stability, weather, age distribution (birth rate), specialisation in an area

Question 7

Problems economic growth brings

Answer 7

Inequality, pollution, inflation, breakdown of family values, social problems (overcrowding, suicide, divorce, traffic,…)

Question 8

Government policies that affect aggregate demand (2)

Answer 8

Fiscal policy, monetary policy

Question 9

Fiscal policy (2)

Answer 9

Controlling spending and taxation rates; expansionary fiscal policy to increase AD (less taxes), deflationary fiscal policy to reduce AD (more taxes)

Question 10

Monetary policy

Answer 10

Controlling the supply of money (use of interest rates) (ECB, not governments in Europe)

Question 11

Keynesian theory by Keynes (4)

Answer 11

State and private sector play an important role in balancing out the economic cycles, aggregate demand for goods is the driving factor in economy (especially in periods of downturn), higher taxes and less benefits and subsidies when things are good; opposite when bad, UNEMPLOYMENT IS THE WORST ENEMY

Question 12

Neo-classical / monetarist theory

Answer 12

Focuses on the macroeconomic effects of the SUPPLY OF MONEY and central banking, if the supply of money increases too much leads to WORST ENEMY INFLATION (this is what authorities should focus on)

Question 13

Why do governments tax?

Answer 13

To raise government revenue, for financial equality (progressive taxing), to safeguard health, influence consumer spending, control the economy (fiscal policy), control externalities, stop/reduce imports (tariffs)

Question 14

Three categories of direct and indirect taxes

Answer 14

PROGRESSIVE; bigger income, bigger percentage. REGRESSIVE; bigger income, smaller percentage (indirect) (petrol etc.). PROPORTIONAL; everybody pays the same amount