Role of Government in Economy

Question 1

General economic policy aims for government

Answer 1

• Sustainable growth
• Control inflation
• Full employment
• Trade balance

Question 2

Fiscal Policy

Answer 2

Government

Injection (with regards to circular flow ) = Government spending

Leakage = Taxation

Question 3

Monetary Policy

Answer 3

Bank of England

Concerned with money circulation and interest rates

Injection = Investment

Savings = Leakage

Target Inflation = 2%

Question 4

Balance of payments

Answer 4

Flows of money between UK and Rest of World

Injection = Exports

Leakage= Imports

Question 5

Direct Taxation

Answer 5

Taxation of incomes of individuals
Profits of companies (Corporation tax)
Wealth Transfers in form of inheritance tax

Question 6

Indirect Taxation

Answer 6

Taxation of products and services

Question 7

PSNCR

Answer 7

Public Sector Net Cash Requirement

Amount government must borrow each year to meet gap between government spending and government incomes

Question 8

Balance of Payments Accounts

Answer 8

Current account - Exports minus Imports

Capital and Financial Account - UK Investment Abroad + Foreign investment in UK

Question 9

Current Account Deficit

Answer 9

Imports Greater than your Exports

Allow Sterling to depreciate

• Exports appear cheaper to foreigners
• Reduce power of UK Citizens, Imports appear more expensive

Question 10

Current Account Surplus

Answer 10

Exports Greater than your Imports

Allow Sterling to appreciate

• Boost purchasing power of UK Citizens, increase import
• Makes exports appear more expensive to foreigners