11. NZ Macroeconomics

Question 1

What are the 3 different types of Macroeconomic Policies?

Answer 1

Fiscal, Monetary, Supply Side

Question 2

What is Macroeconomics?

Answer 2

Studying how a national economy works. It consists of all the different markets for goods and services and anything else that is traded.

Question 3

What could rising Total Demand or falling Total Supply lead to?

Answer 3

Inflation by pushing up prices in the market.

Question 4

What could falling Total Demand lead to?

Answer 4

Unemployment, lower prices

Question 5

What are the aims of a government with Macroeconomics?

Answer 5

Low and stable inflation
High and stable employment
Economic growth
Stable balance of imports and exports
Reduce poverty
Reduce pollution

Question 6

What would happen if there was no Economic growth?

Answer 6

Employment, income and living standards will fall
Government tax spending will fall
Revenue will fall

Question 7

What is inflation?

Answer 7

A continuous rise in the average level of prices

Question 8

How might rising inflation impact an economy?

Answer 8

It reduces the purchasing power of consumers
It causes hardship for people on low incomes
It increases business costs, especially if workers demand higher wages
It makes goods and services more expensive to buy

Question 9

What may happen if unemployment rises?

Answer 9

National Output will fall
The government will have to support them with welfare payments
Worker’s skills may become obsolete

Question 10

What is a stable balance of international trade?

Answer 10

A country does not exceed the amount spent on imports than the amount earned from exports
Export revenue must be equal to or greater than Import expenditure.

Question 11

What may happen if a country has a deficit in its balance of payments?

Answer 11

It may run out of foreign currency to buy imports

The value of its currency may fall against the value of others.

Question 12

What do Aggregate demand and Aggregate supply determine in an economy?

Answer 12

Equilibrium of prices
The total level of output
The total level of employment

Question 13

What are the two side policies?

Answer 13

Demand and Supply-side policies.

Question 14

What is the purpose of Demand and Supply-side policies?

Answer 14

Influence Aggregate Demand and Aggregate Supply

Question 15

What is the purpose of Demand side policies?

Answer 15

Boost aggregate demand in an economy

Question 16

How do demand side policies boost aggregate demand?

Answer 16

Changing public expenditure
Changing the level of taxation which impacts disposable income
Changing the rate of interest/OCR to make borrowing or saving more attractive to consumers and businesses

Question 17

What is Fiscal Policy?

Answer 17

Varying the overall level of public expenditure and taxation in an economy to impact aggregate demand

Question 18

How would Fiscal Policies impact aggregate demand?

Answer 18

Increasing public expenditure to create jobs and demand for goods and services
Changing the tax rate to affect disposable income and demand

Question 19

What are the characteristics of an Expansionary Fiscal Policy?

Answer 19

Increasing Government expenditure

Cutting taxes

Question 20

Under what circumstances would a government implement Expansionary fiscal policy?

Answer 20

When the economy is in deficit

When spending outweighs revenue

Question 21

What is Contractionary Fiscal Policy?

Answer 21

Aiming to reduce prices in an economy
This is done by reducing public expenditure
Or raising taxes to reduce demand

Question 22

Under what circumstances would a government implement Contractionary fiscal policy?

Answer 22

If the country is in deficit and the Government wants to reduce the budget deficit

Question 23

What are the problems with Fiscal Policy?

Answer 23

Difficult to know exactly when and by how much to expand public spending or cut taxes by.
For the government to increase spending or cut taxes it may need to borrow money.
Increasing taxes on income and profits can reduce the incentive for people to work.
People may expect inflation and start a push for higher wages

Question 24

What is the purpose of Supply Side policies?

Answer 24

Influence Aggregate supply

Question 25

How do Government Supply-side policies influence aggregate supply?

Answer 25

Giving tax incentives to businesses
Providing financial and capital subsidies
Providing training for workers
Removing trade barriers and tariffs
Preventing Monopolies from forming

Question 26

What is Privatisation?

Answer 26

wWen a government will sell state owned assets (SOE) to the private sector

Question 27

What is Monetary Policy?

Answer 27

The manipulation of interest rates and the money supply within an economy

Question 28

What are the aims of Monetary policy?

Answer 28

Boost Economic activity by increasing the money supply

Question 29

How does the government boost the money supply?

Answer 29

Changes the Interest rates

Question 30

What effect does lowering interest rates have on the economy?

Answer 30

Encourages spending as it is cheaper to borrow
Discourages saving
Can lift the economy out of a slump

Question 31

What effect does increasing interest rates have on the economy?

Answer 31

Discourages firms and individuals from spending

Question 32

What is Contractionary Monetary Policy?

Answer 32

Increasing interest rates

Question 33

What is Expansionary Monetary Policy?

Answer 33

Decreasing Interest rates

Question 34

What is Exchange rate policy?

Answer 34

Changing the interest rates to influence exchange rates of currency

Question 35

What are all the different types of policy? (7)

Answer 35

Demand side policies
Supply side policies
Expansionary Fiscal policy
Contractionary Fiscal policy
Contractionary Monetary policy
Expansionary Monetary policy
Exchange rate policy