Unit 4(4.1-4.5)

Question 1

what is the role of the government as a producer

Answer 1

produces merit goods,public goods, welfare services, public services and infrastructure

Question 2

what is the role of the government as an employer

Answer 2

provides employment to people who work to provide the goods and services the government produces

Question 3

roles of the government other than producer and employer

Answer 3

support agriculture and other such industries
help vulnerable groups of people
manage the macroeconomy
manage the trade in goods and services with other countries

Question 4

what are the 4 macroeconomic aims of the government

Answer 4

economic growth
price stability
low levels of unemployment
balance of payments stability

Question 5

what is economic growth

Answer 5

an increase in the GDP

Question 6

what is price stability

Answer 6

low levels of inflation are targeted by the government

Question 7

what is low levels of unemployment

Answer 7

high employment leads to high levels of output and welfare services dont need to be given out

Question 8

what is balance of payments stability

Answer 8

imports and exports should be balanced
if too much is imported, economy can run out of foreign currency which means the currency falls and imports become more expensive
if too much is exported, currency can rise against other currencies and make exports more expensive

Question 9

what conflicts between macroeconomic aims exist

Answer 9

full employment vs price stability
economic growth and full employment vs balance of payments stability
economic growth vs full employment

Question 10

explain the conflict between full employment and price stability

Answer 10

low rates of unemployment creates higher incomes and demand which can cause demand pull inflation

Question 11

explain the conflict between economic growth, full employment and balance of payments stability

Answer 11

as income rises due to economic growth and low unemployment, people can import more foreign goods which causes a deficit in the balance of payments

Question 12

what is budget

Answer 12

a financial statement that shows the governments revenue from taxes and other incomes, and expenditure

Question 13

why do governments spend

Answer 13

they spend on public goods and services out of a social and economic responsibility
this is because govt spending is also a part of aggregate demand

Question 14

reasons for government spending

Answer 14

supply public and merit goods
welfare payments
achieve supply side improvements
reduce negative externalities
subsidise certain industries
redistribute income
aid economic growht

Question 15

what are the effects of government spending

Answer 15

leads to higher demand and economic growth
can cause inflation
investment in infrastructure can lead to increased productivity and growth
increase living standards and reduce inequality
too much public investment can reduce private investment

Question 16

what are taxes

Answer 16

the governments main source of revenue

Question 17

why are taxes levied

Answer 17

source of govt revenue
redistributing incomes
reduce consumption and production of demerit goods
protect domestic industry
manage the economy

Question 18

how are taxes used to redistribute incomes

Answer 18

taxes are levied on those who earn higher incomes
this money is then used to fund welfare schemes

Question 19

how do taxes protect domestic industry

Answer 19

they are levied on foreign goods that make them more expensive and let domestic products competitive

Question 20

how do taxes manage the economy

Answer 20

lower taxes increase aggregate demand and supply which allows for growth during high inflation
govts can increase taxes to reduce demand

Question 21

what are direct taxes

Answer 21

taxes on income. burden of paying falls directly on the individual

Question 22

advantages of direct taxes

Answer 22

high revenue for the government
can reduce inequalities in income and wealth

Question 23

disadvantages of direct taxes

Answer 23

reduces work incentives
reduces enterprise incentive
many people to try escape paying, means government has to use resources to catch them

Question 24

what are indirect taxes

Answer 24

taxes on goods and services sold
indirectly takes money as tax from consumer expenditure

Question 25

advantages of indirect taxes

Answer 25

low cost of collecting taxes expanded tax base can discourage specific goods easy to alter with effects more immediate

Question 26

disadvantages of indirect taxes

Answer 26

raises prices of goods, causing inflation tax will fall heavier on poor people than rich can cause illegal smuggling of goods

Question 27

what are progressive taxes

Answer 27

taxes which burden the rich more than the poor because rate of taxation increases as income increases

Question 28

what are regressive taxes

Answer 28

rate of taxation falls as income rises burdens the poor more than the rich

Question 29

what are proportional taxes

Answer 29

rate of taxation remains equal as income rises or falls burdens all equally

Question 30

what are qualities of a good tax system

Answer 30

equity all information made available to payer cost of collecting is less than tax itself tax levied at convenient time flexible easy to understand for everybody

Question 31

impacts of taxation

Answer 31

main impact depends on what the government uses the money for less disposable income can reduce incentive to work or make workers work harder producers have less incentive to produce

Question 32

what is fiscal policy

Answer 32

government policy which adjusts government spending and taxation to influence the economy

Question 33

what fiscal policy does the government employ when theres budget surplus

Answer 33

expansionary fiscal policy where government spending is raised and taxes are cut

Question 34

what is the impact of expansionary fiscal policy

Answer 34

stimulates growth and employment

Question 35

what fiscal policy does the government employ when theres budget deficit

Answer 35

contractionary fiscal policy where govt spending is cut and tax rates are increased used to control inflation

Question 36

what is money supply

Answer 36

the total value of money available in an economy at a point of time

Question 37

what are interest rates

Answer 37

the cost of borrowing money

Question 38

impact of higher interest rates

Answer 38

higher interest rats will discourage borrowing and investments encourages saving rather than consuming

Question 39

impact of low interest rate

Answer 39

encourage borrowing and investments encouraging spending rather than saving

Question 40

what is monetary policy

Answer 40

governemnt policy that controls money supply usually conducted by the central bank

Question 41

what is expansionary monetary policy

Answer 41

where the government increases money supply by cutting interest rates leading to more spending than saving

Question 42

effect of expansionary monetary policy

Answer 42

more money will be circulated economic growth and an improvement in balance of payments employment will rise

Question 43

what is contractionary monetary policy

Answer 43

government decreases money supply by increasing interest rates.

Question 44

effect of contractionary monetary policy

Answer 44

encourages saving rather than spending businesses will be reluctant to invest lower money supply, slows down economic growth and reduce inflation can cause unemployment

Question 45

what are supply side policies

Answer 45

microeconomic policies aimed at increasing supply and productivity in an economy that leads to long term economic growth

Question 46

what is public sector investments in supply side policies

Answer 46

investments in transport and communication can facilitate faster growth

Question 47

what is improving education in supply side policies

Answer 47

improves the quality and quantity of labour to increase productivity

Question 48

how is spending on health a supply side policy

Answer 48

improves health of the population, increasing productivity

Question 49

investment on housing in supply side policies

Answer 49

geographical mobility is increased, helping increase output

Question 50

privatisation in supply side policies

Answer 50

can increase efficiency and increase output

Question 51

income tax cuts in supply side policies

Answer 51

increasing income can increase peoples willingness to work and earn more

Question 52

subsidies in supply side policies

Answer 52

financial grants given to producers to produce more and increase supply

Question 53

deregulation in in supply side policies

Answer 53

allows businesses to operate easier and produce more output

Question 54

removing trade barriers in supply side policies

Answer 54

by reducing import duties, more resources and goods are available to the economy. can also incentivise export of goods, increasing production

Question 55

labour market reforms in supply side policies

Answer 55

making laws that reduce trade union power would reduce business costs and increase output

Question 56

advantage of supply side policies

Answer 56

the direct effect of economic growth. reduces unemployment trade reforms will improve balance of payments

Question 57

disadvantage of supply side policies

Answer 57

reliance on public expenditure and tax cuts means the government will run large budget deficits deregulation and privatisation reduces government intervention and can cause market failure