The role of government

Question 1

the 2x main functions of the government relating to the financial markets are?

Answer 1

1. Managing the economy
2. Regulation (consumer protection)

Question 2

the government’s 4x objectives?

Answer 2

1. price stability
2. low unemployment
3. balance of payments (equilibrium)
4. economic growth

Question 3

how can the government correct a deficit? x3

Answer 3

1. Increase interest rates to encourage overseas investment
2. Impose tariffs/import quotas
3. Impose exchange controls

Question 4

what is fiscal policy vs monetary policy?

Answer 4

1. fiscal - economic activity through spending, taxation and borrowing
2. monetary - supply and price of money through interest rate policy

Question 5

cutting taxes and/or increasing public spending is known as?

Answer 5

Expansionary fiscal policy

Question 6

increased taxation and reduced public spending is known as?

Answer 6

Contractionary fiscal policy

Question 7

Contractionary fiscal policy helps to? x2

Answer 7

Reduce both inflation and the current account deficit

Question 8

What are the direct taxes? x5

Answer 8

Income, NIC, CGT, IHT, corporate

Question 9

what is indirect tax?

Answer 9

Levied on spending or use of a service, paid HMRC by the provider e.g. VAT and APD

Question 10

what are the 3 main classes of National Insurance tax?

Answer 10

Class 1 - paid by employees and employers, calculated using bands of income

Class 2 - voluntary contributions

Class 4 - paid by self‑employed individuals, a percentage of profits between the ‘lower profits limit’ and the ‘upper profits limit

Question 11

Capital gains tax (CGT) is payable on gains (profits) made by UK tax residents on the disposal of what assets? x3

Answer 11

shares, investment products, property other than the owner’s home

Question 12

IHT nil rate band, property nil rate band and levied rate %?

Answer 12

£325000, £170000, 40% on anything above

Question 13

What happens with IHT regarding a spouse or civil partner? x2

Answer 13

They’re exempt on death and can inherit the nil-rate band (£325,000 money, £170,000 property)

Question 14

What is the IHT annual gift exemption?

Answer 14

£3000

Question 15

Corporation tax is not paid by? x3

Answer 15

conventional business partnerships or limited liability partnerships or by self‑employed individuals

Question 16

The Bank of England’s Monetary Policy Committee (MPC) is responsible for?

Answer 16

setting the rate of interest

Question 17

The government has set a target inflation rate of 2% which is measured by?

Answer 17

the Consumer Prices Index (basket of goods + services)

Question 18

When the rate of inflation is too high the MPC will?

Answer 18

raise the bank rate to reduce borrowing + boost saving

Question 19

M4, known as broad money, measures what?

Answer 19

bank and building society deposits, and new money created by loans and overdrafts

Question 20

Consumer Price Index vs Retail Price Index?

Answer 20

CPI - basket of goods and services of 180,000+ price quotes
RPI - also includes some mortgage and housing costs

Question 21

Nominal vs Real interest rate?

Answer 21

The nominal interest rate is the rate actually paid or charged

The ‘real’ interest rate is the nominal interest rate less inflation

Question 22

What state benefits are not NIC dependant?

Answer 22

ESA, PIP, Carer’s Allowance, Universal credit

Question 23

Those reaching state pension age before 6 April 2016 received a basic state pension and what top-up if not self-employed?

Answer 23

a top up to their pension to bring it to 60 per cent. Min 1 year NIC max 30 years NIC

Question 24

Those reaching state pension age from 6 April 2016 receive a new ‘flat rate’ state pension based on what min and max NICs?

Answer 24

Min 10 years Max 35

Question 25

The government's 4x tiers of regulation of the UK financial services industry?

Answer 25

1. Acts of Parliament 2. Regulating bodies (FCA: PRA + FPC) 3. Policies/practices of financial institutions (legally) 4. Arbitration schemes (complaints to the FOS)