The government

Question 1

Interest Rates:

Answer 1

is the price paid to borrow money

is a reward to savers

affects purchases of customers durables and housing

affects the business purchases of machinery, tools and equipment

is set by the bank of England

Question 2

Why is taxation used? Why is government spending used?

Answer 2

TAXATION is used to:
Raise revenue to fund government spending
regulate demand in the economy
change behaviour

GOVERNMENT SPENDING is used to:
provide essential public services
regulate demand in the economy
resolve social issues, such as child poverty

Question 3

Effects of high interest rates:

Answer 3

Mortgages payment increase
Fewer loans are taken out for consumer goods.
Firms cut investment funded by borrowing
People may save more instead of spending

Question 4

Two different government policies

Answer 4

MONETARY POLICY

FISCAL POLICY

Question 5

What is monetary policy:

Answer 5

using changes in interest rates to influence economic activity.

Question 6

What is fiscal policy:

Answer 6

using taxation and government spending to achieve government objectives.

Question 7

Reducing unemployment:

Answer 7

More demand in the economy helps to create jobs, Businesses have to produce more to meet increased demand, and to produce more they will need more workers, The government can increase demand by:

• Lowering interest rates
• Lowering taxes
• Increase government expenditure