(1) Chapter 9 - Macroeconomic Policy

Question 1

What is a POLICY INSTRUMENT

Answer 1

A tool used to try achieve a policy objective

Question 2

What is the BANK OF ENGLAND

Answer 2

The central bank in the UK which is in charge of monetary policy

Question 3

What is INFLATION RATE TARGET and what is the current target

Answer 3

CPI inflation target set by the government which has a target of 2%

Question 4

Define BANK RATE

Answer 4

The rate of interest the Bank of England pays to commercial banks on their deposits

Question 5

Define LIQUIDITY

Answer 5

Measures how easily assets can be turned into cash without making a loss

Question 6

What is MONEY SUPPLY

Answer 6

The stock of money in the economy made up of cash and bank deposits

Question 7

What is CONTRACTIONARY MONETARY POLICY

Answer 7

Using higher interest rates to decrease AD

Question 8

Define EXCHANGE RATE

Answer 8

The price of a currency measured in terms of another currency

Question 9

What is EXPANSIONARY MONETARY POLICY

Answer 9

Using lower interest rates to increase AD

Question 10

What is DEMAND-SIDE FISCAL POLICY

Answer 10

Influencing AD through changes of Govt spending, taxation and budget balance

Question 11

What is DEFICIT FINANCING

Answer 11

Deliberately running a budget deficit and borrowing to finance the deficit

Question 12

What is EXPANSIONARY FISCAL POLICY

Answer 12

Using fiscal policy to increase AD

Question 13

What is CONTRACTIONARY FISCAL POLICY

Answer 13

Using fiscal policy to decrease AD

Question 14

What is DESCRETIONARY FISCAL POLICY

Answer 14

Making discrete changes to Govt spending, taxation and budget balance to manage AD

Question 15

What is SUPPLY-SIDE FISCAL POLICY

Answer 15

Used to increase the economy’s ability to produce and supply goods

Question 16

Define NATIONAL DEBT

Answer 16

The total amount of debt accumulated from every year

Question 17

Define PROGRESSIVE TAX

Answer 17

As income rises, a larger proportion of income is paid in tax

Question 18

What is PRINCIPLE OF TAX

Answer 18

A criterion used for judging whether a tax is good or bad

Question 19

Define PROGRESSIVE TAXATION

Answer 19

As income rises a larger proportion of income is paid to the government

Question 20

Define REGRESSIVE TAXATION

Answer 20

As income rises a smaller proportion of income is paid to the government

Question 21

Define PROPORTIONAL TAXATION

Answer 21

When the proportion of income paid in tax stays the same as income increases

Question 22

Define DIRECT TAX

Answer 22

A tax which cannot be shifted for another person to pay. Usually levied on income and wealth

Question 23

Define INDIRECT TAX

Answer 23

A tax that can be shifted for another person to pay. Usually levied on spending

Question 24

Define SUPPLY-SIDE POLICIES

Answer 24

Aim to improve national economic performance by creating competitive and more efficient markets

Question 25

What is SUPPLY-SIDE ECONOMICS

Answer 25

Believing that the government should be used to improve the competitiveness and efficiency of markets

Question 26

Define INTERVENTIONALIST POLICIES

Answer 26

Governments interfering with market. They could fund research and development

Question 27

Define NON-INTERVENTIONALIST SUPPLY-SIDE POLICIES

Answer 27

Free up markets promoting competition

Question 28

Define PRIVITISATION

Answer 28

Shifting the ownership of state-owned assets to the private sector

Question 29

Define MARKETISATION/COMMERCIALISATION

Answer 29

Shifting provision of goods/services from non-market sector to market sector

Question 30

Define DEREGULATION

Answer 30

Removing previously imposed regulations

Question 31

What is SUPPLY-SIDE IMPROVEMENT

Answer 31

Undertaken by the private sector to reduce cost to enable firms to become more productively efficient

Question 32

Order these from most liquid to least: - Bank saving accounts - Shares, bonds and bills - Notes and coins - Building society accounts - Banking current account

Answer 32

1. Notes and coins 2. Bank current accounts 3. Banking saving account 4. Building society accounts 5. Shares, bonds and bills

Question 33

Define NARROW MONEY

Answer 33

Notes, coins and current accounts (immediate accessible)

Question 34

Define BROAD MONEY

Answer 34

Narrow money + financial assets (not immediately accessible)

Question 35

Define MONEY MARKETS

Answer 35

Short-term loans to individuals, firms and government

Question 36

Define CAPITAL MARKETS

Answer 36

Mid-Longterm trades of bonds and shares to firms and government

Question 37

What is the FOREIGN EXCHANGE MARKET

Answer 37

Trade between different currencies

Question 38

What is the difference between the SPOT MARKET and the FORWARD MARKET

Answer 38

Spot market - Immediate conversion | Forward market - Agreement to buy at a later date

Question 39

What are TREASURY BILLS

Answer 39

Short-term debts borrowed by the government usually repaid within 3 months