Tool Kit

Question 1

What are the measures to reduce fiscal deficit?

Answer 1

1. Austerity
2. Supply side policies (interventionist and market-based)
3. Automatic stabilisers (to increase AD -> employment -> tax revenue)

Question 2

What are the measures to reduce inequality and poverty?

Answer 2

1. Progressive taxation system
2. Improving geographic and job mobility
3. Minimum wage

Question 3

Is quantitative easing effective?

What does it impact?

Answer 3

1. Improvement in AD from increased C and I
2. Improvement in AD from exchange rates -> supply shift -> pound weakens -> net trade improves -> AD rises

However
1. Hyperinflation - Weimar Germany

2. Depends on banks, consumers and producer confidence

Question 4

Define Fiscal policy?

Answer 4

Government changes tax revenue, expenditure and borrowing to fulfil its macro-objectives.

Question 5

Define monetary policy?

Answer 5

Central bank changes its interest rate and money supply to fulfil its objectives (e.g. economic growth or control inflation)

Question 6

Define quantitative easing?

Answer 6

Where the central bank purchases financial assets e.g. Government bonds from commercial banks to increase money supply.

Question 7

What are the measures to international competitiveness?

Answer 7

1. Weaken the pound
2. Interventionist - Investment in infrastructure, capital tools and human capital
3. Market based - deregulation, lower taxes, subsidies