Topic 2: Economic Policy & Financial Regulation

Question 1

What is Inflation?

Answer 1

Increase of goods and services

Question 2

What is Disinflation?

Answer 2

Prices of goods still increasing but slower

Question 3

What is Deflation?

Answer 3

• A fall in the price of goods and services
• Below 0%

Question 4

A objective that relates to the economy as a whole

Answer 4

Macroeconomic Objective

Question 5

What are the 4 key microeconomic objectives?

Answer 5

1. Price Stability
2. Low unemployment
3. Balance of payments equilibrium
4. Satisfactory economic growth

Question 6

What type of macroeconomic objective is classed as ?

“Low and controlled rate of inflation”

Answer 6

Price Stability

Question 7

What type of macroeconomic objective is classed as ?

“Demand for increase of labour, land & capital

Answer 7

Low unemployment

Question 8

What type of macroeconomic objective is classed as ?

Balancing of imports and exports that is linked to exchange rates

Answer 8

Balance of payments equilibrium

Question 9

What type of macroeconomic objective is classed as ?

Growing economy and increase in living standards

Answer 9

Satisfactory economic growth

Question 10

Which macroeconomic objectives are linked to each other?

Answer 10

1. Low unemployment & satisfaction economic growth
2. Price Stability & Balance of payments equilibrium

Question 11

What is an overall measurement of a countries economy activity over a period of time?

Answer 11

GDP (Gross Domestic Product)

Question 12

What 4 stages do economies go through?

Answer 12

1. Recovery and Expansion
2. Boom
3. Contraction/Slowdown
4. Recession

Question 13

CPU (Consumer Price Index) aims to keep inflation at what percentage?

Answer 13

1- 3%

Divergence either side of 1%

Question 14

How does the monetary policy aim to control inflation?

Answer 14

By manipulation of interest rates to control the amount of money in the economy

Question 15

Why do banks and financial institutions alter interest rates in line with the BOE?

Answer 15

To cover cost and make profit

Question 16

How does interest charges affect tracker mortgage holders?

Answer 16

Increases may mean the borrow cannot afford the mortgage

Question 17

What is Fiscal Policy?

Answer 17

Use of taxes and public spending to manage the economy
(macroeconomic objectives)

Question 18

What type of budget is defined as?

• Taxation and public sector are equal
• Tax invested in public sector

Answer 18

Balanced Budget

Question 19

What type of budget is defined as?

• Taxation is greater than public spending
• Economy contracts

Answer 19

Budget Surplus

Question 20

What type of budget is defined as?

• Public Spending is greater than taxation
• Economy Expands

Answer 20

Budget Deficit

Question 21

Public Service Net Cash Requirement (PSNCR) is used when?

Answer 21

1. Public Sector has deficit
2. Must borrow to cover deficit

Question 22

What are Indirect Taxes?

Answer 22

Tax applied to goods and services

Question 23

What are Direct Taxes?

Answer 23

Taxes applied to Individuals and their assests

Question 24

Taxation increases lead to what?

Answer 24

Fall in inflation

Question 25

Decrease in taxation leads to what?

Answer 25

Increase in inflation

Question 26

What 2 ways do tax increases affect financial services?

Answer 26

1. Reduces money for investments and repayment 2. Makes some products less attractive

Question 27

The Revocation and Reform Bill of 2022 allowed the government to do what?

Answer 27

Amend EU law in the UK post Brexit

Question 28

Most common EU law types are?

Answer 28

1. Regulation 2. Directives

Question 29

What EU law is defined as? - Have general application - Binding in entirely in what and how it is to be achieved - Directly applicable in all member states

Answer 29

Regulations

Question 30

What EU law is defined as? - Binding to each member states addressed as a result to be achived - Each state has discretion as to how these are achieved - Objective must be achieved with 2 years

Answer 30

Directives

Question 31

Post BREXIT does the UK need to adopt EU legislation?

Answer 31

No they can decide if they want to

Question 32

The commission set up to monitor financial regulation across the EU is called what?

Answer 32

European System of Financial Supervision (ESFS)

Question 33

The ESFS has Supervisory authorities called?

Answer 33

European Supervisory Authorities (ESA)

Question 34

ESA has power to do what?

Answer 34

Make decisions and rules change to regulatory bodies

Question 35

Are the PRU & FCA part of ESFS post Brexit?

Answer 35

No (but must follow ESA rules over UK businesses providing services to clients in EU countries

Question 36

- European Securities & Markets Agency (ESMA) - European Banking Authority (EBA) - European Insurance & Occupational Pensions Authority (EIOPA)

Answer 36

Are the ESA

Question 37

What are the 4 tiers of regulatory oversight in the UK?

Answer 37

1. Acts of Parliament 2. Regulatory Bodies 3. Financial Institutions Policies & Procedures 4. Arbitration Schemes

Question 38

Which regulartory tier is this? - Sets out what can or can't be done - legalisation called " statutory requirements"

Answer 38

Acts of Parliament 1st tier

Question 39

Which regulartory tier is this? - monitors rules and regulation about legislation

Answer 39

Regulatory Bodies 2nd tier

Question 40

What are the main regulatory bodies in the UK?

Answer 40

- PRU (Predentual Regulation Authority - FCA ( Financial Conduct Authority)

Question 41

Which regulartory tier is this? - Ensure they operate legally & competently

Answer 41

Financial Institutions Policies & Procedures 3rd tier

Question 42

Which regulartory tier is this? - Financial Ombudsman Scheme - Refer customers complaints

Answer 42

Arbitration Schemes 4th tier

Question 43

What is the name of the ECB's organisation for supervision and monitoring of banks in the EU

Answer 43

Single Supervisory Mechanism (SSM)

Question 44

What does the SSM do?

Answer 44

- Bank monitoring & supervision in EU - Common approach to banking - ECB has final decision on supervisory matters