5. GOVERNMENT MACROECONOMY INTERVENTION

Question 1

Macroeconomic objectives

Answer 1

Price stability
Low unemployment
Economic growth

Question 2

Government budget

Answer 2

Financial plan outlining revenues (taxes) & expenditure over a period

Question 3

Budget deficit

Answer 3

When spending > revenue

Question 4

Budget surplus

Answer 4

When revenue > spending

Question 5

National debt

Answer 5

Cumulative amount of gov borrowing over time

Question 6

Direct tax

Answer 6

Paid directly to gov
Income tax, corporation tax

Question 7

Indirect tax

Answer 7

tax on goods/services rather than on income/profits

Question 8

Progressive tax

Answer 8

Higher income -> higher tax percentage

Question 9

Regressive tax

Answer 9

Lower income -> higher tax burden

Question 10

Marginal rate

Answer 10

Tax on the next unit of income

Question 11

Government spending reasons

Answer 11

Provide public goods
Reduce inequality
Stabilise economy

Question 12

Expansionary fiscal policy

Answer 12

Increase spending
Cut taxes

to boost AD

Used during recessions

Question 13

Contractionary fiscal policy

Answer 13

Decrease spending/ raise taxes

to reduce AD

Used during inflation

Question 14

Impact of expansionary/ contractionary fiscal policies on AD/AS

Answer 14

Expansionary- AD shifts right, higher output, higher price levels

Contractionary- Ad shifts left, lower output, lower price levels

Question 15

Monetary policy

Answer 15

Use of interest rates, money supply, and credit regulations to influence AD

Question 16

Tools for monetary policy

Answer 16

Interest rates- higher rates discourage borrowing & spending, lower rates reduce & increase consumption, increase AD

Money supply- increase money supply boosts spending, reducing slows inflation

Question 17

Expansionary/ contractionary monetary policy

Answer 17

Expansionary- lower interest rates, increase money supply -> boosts AD
Contractionary- high interest reates, reduced money supply -> inflation

Question 18

Impact of expansionary monetary policy on AD/AS

Answer 18

Expansionary- AD shifts right, higher output & price levels
Contractionary- AD shifts left, lower output, price levels

Question 19

Supply-side policy

Answer 19

Policies aimed at increasing the economy’s productive capacity and LRAS

Question 20

Objectives of supply-side policy

Answer 20

Boost productivity
Encourage innovation
Improve efficiency

Question 21

Tools for supply-side policy

Answer 21

Education/Training: Enhances workforce skills.

Infrastructure development: Improves efficiency (e.g., roads, telecom)

Technology support: Encourages innovation.

Labor market reforms: Reduces barriers (e.g., flexible working hours

Question 22

Supply-side policy impact on AD/AS

Answer 22

LRAS shifts right -> higher output, lower price levels, improved employment

Question 23

Terms of trade

Answer 23

Measure of the relative prices of a country’s exports compared to its imports

Question 24

Calculation of ToT

Answer 24

Index of export prices/ index of import prices x 100

Question 25

When does ToT improve

Answer 25

improves when export prices rise relative to import prices

a country can buy more imports for the same amount of exports

Question 26

When does ToT deteriorate

Answer 26

deteriorates when import prices rise relative to export prices

a country needs to export more to buy the same quantity of imports

Question 27

Factors influencing ToT