1.2 Economic policy Flashcards
What are the 4 key macroeconomic objectives?
1) price stability - low, controlled rate of inflation
2) low unemployment - expanding the economy and demand for labour,land & capital
3) balance of payments equilibrium - balanced spending & income on goods, services & investments abroad
4) satisfactory economic growth - economy growing in real terms & living standards rising
What is inflation?
A general progressive rise in prices of goods and services over a given period of time.
What is Disinflation?
A fall in the rate of inflation. Ie. Prices are still rising but less quickly than they were
What is deflation?
A general fall in the prices of goods and services. A negative inflation rate.
What is Gross Domestic Product (GDP)?
GDP is a measurement of a country’s overall economic activity. It is the monetary value of all the goods and services produced domestically in a given time period.
If GDP falls the economy is said to be contracting or slowing down.
If GDP rises the economy is said to be expanding or in recovery.
At its highest level the economy is booming
What is the consumer price index (CPI)?
A measure of the change in price of a ‘basket’ of goods and services over a period of time. Used to measure levels of inflation
What is the UK governments target for inflation?
Average rate of 2% with a divergence either side of 1%
1-3%
What is the main method used to control inflation?
The manipulation of interest rates
What is monetary policy?
Measures taken to control the supply of money in the economy in order to manage inflation. Eg. Manipulation of interest rates, restrictions on lending.
What is the Bank Rate/Base Rate and who sets it?
The rate at which the Bank of England lends to other financial institutions. It is set by the Bank of England’s Monetary Policy Committee (MPC)
What is fiscal policy?
The adjustment of levels of taxation and public spending in a way that is intended to achieve the governments macroeconomic objectives.
Explain direct and indirect taxes
Direct taxes are those that apply to individuals and their assets. ie. income tax, capital gains tax, inheritance tax and NI contributions
Indirect taxes are applied to goods and services at the of purchase. ie. VAT, Stamp Duty, Fuel Duty
What is the Public Sector Net Cash Requirement?
This is a cash measure of the public sectors short term net financing requirement
What is a European Regulation?
European Laws that are binding in their entirety in respect to both what and how it is to be achieved. Directly applicable to all member states unless have specific dispensation.
What is a European Directive?
European Law that is binding to each member state to which they are addressed. Must be achieved within a timescale (usually 2 years) but exactly how left to the authorities in each state.
