(1) Chapter 9 - Macroeconomic Policy Flashcards
What is a POLICY INSTRUMENT
A tool used to try achieve a policy objective
What is the BANK OF ENGLAND
The central bank in the UK which is in charge of monetary policy
What is INFLATION RATE TARGET and what is the current target
CPI inflation target set by the government which has a target of 2%
Define BANK RATE
The rate of interest the Bank of England pays to commercial banks on their deposits
Define LIQUIDITY
Measures how easily assets can be turned into cash without making a loss
What is MONEY SUPPLY
The stock of money in the economy made up of cash and bank deposits
What is CONTRACTIONARY MONETARY POLICY
Using higher interest rates to decrease AD
Define EXCHANGE RATE
The price of a currency measured in terms of another currency
What is EXPANSIONARY MONETARY POLICY
Using lower interest rates to increase AD
What is DEMAND-SIDE FISCAL POLICY
Influencing AD through changes of Govt spending, taxation and budget balance
What is DEFICIT FINANCING
Deliberately running a budget deficit and borrowing to finance the deficit
What is EXPANSIONARY FISCAL POLICY
Using fiscal policy to increase AD
What is CONTRACTIONARY FISCAL POLICY
Using fiscal policy to decrease AD
What is DESCRETIONARY FISCAL POLICY
Making discrete changes to Govt spending, taxation and budget balance to manage AD
What is SUPPLY-SIDE FISCAL POLICY
Used to increase the economy’s ability to produce and supply goods
Define NATIONAL DEBT
The total amount of debt accumulated from every year
Define PROGRESSIVE TAX
As income rises, a larger proportion of income is paid in tax
What is PRINCIPLE OF TAX
A criterion used for judging whether a tax is good or bad
Define PROGRESSIVE TAXATION
As income rises a larger proportion of income is paid to the government
Define REGRESSIVE TAXATION
As income rises a smaller proportion of income is paid to the government
Define PROPORTIONAL TAXATION
When the proportion of income paid in tax stays the same as income increases
Define DIRECT TAX
A tax which cannot be shifted for another person to pay. Usually levied on income and wealth
Define INDIRECT TAX
A tax that can be shifted for another person to pay. Usually levied on spending
Define SUPPLY-SIDE POLICIES
Aim to improve national economic performance by creating competitive and more efficient markets
What is SUPPLY-SIDE ECONOMICS
Believing that the government should be used to improve the competitiveness and efficiency of markets
Define INTERVENTIONALIST POLICIES
Governments interfering with market. They could fund research and development
Define NON-INTERVENTIONALIST SUPPLY-SIDE POLICIES
Free up markets promoting competition
Define PRIVITISATION
Shifting the ownership of state-owned assets to the private sector
Define MARKETISATION/COMMERCIALISATION
Shifting provision of goods/services from non-market sector to market sector
Define DEREGULATION
Removing previously imposed regulations
What is SUPPLY-SIDE IMPROVEMENT
Undertaken by the private sector to reduce cost to enable firms to become more productively efficient
Order these from most liquid to least:
- Bank saving accounts
- Shares, bonds and bills
- Notes and coins
- Building society accounts
- Banking current account
- Notes and coins
- Bank current accounts
- Banking saving account
- Building society accounts
- Shares, bonds and bills
Define NARROW MONEY
Notes, coins and current accounts (immediate accessible)
Define BROAD MONEY
Narrow money + financial assets (not immediately accessible)
Define MONEY MARKETS
Short-term loans to individuals, firms and government
Define CAPITAL MARKETS
Mid-Longterm trades of bonds and shares to firms and government
What is the FOREIGN EXCHANGE MARKET
Trade between different currencies
What is the difference between the SPOT MARKET and the FORWARD MARKET
Spot market - Immediate conversion
Forward market - Agreement to buy at a later date
What are TREASURY BILLS
Short-term debts borrowed by the government usually repaid within 3 months
