2. The Role Of Government

Question 1

What are the Government’s 2 main functions in relation to financial markets?

Answer 1

Managing the economy

Regulation

Question 2

What are the 4 main objectives of economic policy?

Answer 2

Price stability
Low unemployment
Balance of Payments equilibrium
Economic growth

Question 3

How can a BoP deficit be corrected? (3 measures)

Answer 3

Increase interest rates to attract foreign currency (but stifles domestic growth)

Tariffs and quotas to limit imports

Exchange controls e.g pegging

Question 4

What is the term for the level of government borrowing?

Answer 4

Public Sector Net Cash Requirement

Question 5

What are the pros and cons of expansionary fiscal policy?

Answer 5

Pros:
Encourages investment/growth/employment

Cons:
Increased borrowing/interest
Inflationary

Question 6

What are the pros and cons of contractionary fiscal policy?

Answer 6

Pros:
Dampens demand, reducing available cash
Deflationary

Cons:
Stifles growth
Causes unemployment

Question 7

What are the 4 NI Classes?

Answer 7

Class 1: paid by employees and employers
Class 2: self employed flat rate
Class 3: self employed voluntary
Class 4: self employed % of earnings

Question 8

What are the 4 main CGT exemptions?

Answer 8

Principal private residence
Gilts & corporate bonds
Motor vehicles for normal use
Chattels; personal possessions <£6k

Question 9

What are the NRB for inheritance tax, and the tax rate?

Answer 9

NRB £325k
Property NRB lower of £175k and value of property

Tax rate 40%

Question 10

What are the 4 key features of the BoE Monetary Policy Committee?

Answer 10

Sets base rate
9 members
Meets 8 times a year
If inflation is >1% above or below target, governor has to write to chancellor

Question 11

What are the 3 main ways QE affects the economy?

Answer 11

Increases the price of bonds, reducing yields, causing investors to switch to other asset classes. Lower yields = lower interest rates

Improves capital market conditions - easier to borrow

Increases money supply (inflationary)

Question 12

What are the 2 types of money supply?

Answer 12

M0 - notes + coins
M4 - broad money - bank deposits and new money created by loans & overdrafts

Question 13

Difference between deflation and disinflation?

Answer 13

Deflation = prices falling
Disinflation = rate of inflation slowing

Question 14

What are the 3 main measures of inflation?

Answer 14

CPI; basket of goods and services

RPI; CPI + mortgage and housing costs

Average weekly earnings

Question 15

What are the 10 main types of state benefits?

Answer 15

Sickness & Disability
Statutory Sick Pay (28 weeks)
Employment & Support Allowance
Attendance Allowance (personal care)
Personal Independence Payment
Carer’s Allowance (16+, 35+ hrs /week)
Statutory Maternity Pay (39 weeks)
Statutory Paternity Pay (1 or 2 weeks)
Statutory Shared Parental Pay (ability to share 37 weeks SMP)

Question 16

Who is eligible for Jobseekers Allowance?

Answer 16

Unemployed or working <16 hrs a week
Lower rate for 18-24

Question 17

What are the key features of Universal Credit?

Answer 17

Means-tested for low income workers
Replaced 6 legacy benefits
Rolled out 2013, full transition by 2024
Claimants must commit to look for work

Question 18

What are the recent changes in the State Pension Age?

Answer 18

2018: equalised men and women to 65
2020: 66
2026-28: 67
2046: 68

Question 19

Outline the recent changes to the state pension?

Answer 19

Pre 6 April 2016:
Employed people could earn top ups
Payments based on 1-30 years NICs

On/After 6 April 2016:
No new top ups, but can keep top ups earned before Apr16
Payments based on 10-35 years NICs

Question 20

What are the key features of Pension Credit?

Answer 20

Ensures minimum income for retirees
Men born before 6 April 1951
Women born before 6 April 1953
Higher for couples but both must meet age requirements
Savings >£10k treated as income

Question 21

What are the 4 main responsibilities of Government in terms of regulation?

Answer 21

Acts of Parliament
Regulatory bodies
Policies & practices of financial institutions
Arbitration schemes eg Financial Ombudsman Service

Question 22

Difference between EU Regulation and Directive?

Answer 22

Regulation: implemented directly in UK law

Directive: an objective achieved through UK laws

Question 23

When was the Brexit transition period and what was the craic?

Answer 23

31 Jan 2020 - 31 Dec 2020

EU rules & regs still applied

Question 24

What is onshoring and who has the power?

Answer 24

Amending financial services regulations post-Brexit

FCA and PRA have delegated authority for financial services sector

Question 25

What is meant by “passporting” and “equivalence”

Answer 25

Passporting - ability for EU states to operate in each others financial markets without authorisation

Equivalence - agreement that regulatory standards and broadly equivalent, authorising financial operations