2 Flashcards
Use of monetary Policy?
- Control price stability
2. Encourage economic growth
How does monetary policy affect inflation?
The bank of England sets the base rate of inflation
Define supply-side policies?
Supply-side policies are government attempts to increase productivity and increase efficiency in the economy.
Advantages of supply-side policies?
- Improves the efficiency of the economy
- improves the competitiveness
- improve the productivity
Examples of supply side polices?
- Reduce trade union power
- reduce income tax
- reduce benefits
- privitisations
- reducing corporation tax
Supply-side policies used today?
- education and training
- Investment in infrastucture
- Healthcare
What is GDP per Capita?
This is GDP divided by the number of people in the population
What is a recession?
When GDP falls for 2 consecutive quarters
How is fiscal policy used in the economy?
- Welfare benefits: These allow some consumption for those who cannot work and should eliminate absolute poverty
- Changes to tax: If tax rates decrease, people have more money to spend and so demand for goods and services increase
How does monetary policy affect economic objectives?
- Economic Growth: greater demand for goods and services leads to an increase in growth
- Full Employment: this expansion creates high levels of unemployment and jobs should be more secure
Disadvantages of supply-side policies?
- Can take a long time to have an impact
- Some policies can be very costly and affect the government deficit
- Opportunity cost needs to be considered. This means if they pay for one project they may give up the opportunity to invest in another
- More infrastructure can lead to more pollution
Define a positive externality
When consuming or producing a good causes benefit to a third party
Define a negative externality
When consuming or producing a good causes a cost to a third party
Balance of payments?
A record of all the UK’s transactions with the rest of the world
