chapter 22 - macroeconomic policies

Question 1

3 aims of fiscal policy

Answer 1

1. to provide services
2. control aggregate demand in economy
3. control social policy

Question 2

government spending

Answer 2

injections into circular flow - increases AD

Question 3

government tax

Answer 3

leakages that decrease AD

Question 4

direct taxation

Answer 4

tax on income and company profit

Question 5

indirect tax

Answer 5

tax on consumption spending

Question 6

national debt

Answer 6

total government borrowing

Question 7

budget deficit

Answer 7

government spending is greater than taxation

Question 8

austerity

Answer 8

cut in spending and increase in taxes to reduce the budget deficit

Question 9

4 limitations of fiscal policy

Answer 9

1. governments don’t have perfect information
2. Time lags
3. borrowing
4. fiscal policy on its own may not increase demand

Question 10

4 aims of monetary policy

Answer 10

1. influence supply and the value of money
2. control inflation
3. affect aggregate demand ‘ contractionary and expansionary’
4. influence exchange rate in a floating system

Question 11

interest

Answer 11

the cost of borrowing and the reward for lending
can be fixed or variable

Question 12

quantitative easing

Answer 12

creation of money by the central bank to increase money supply

Question 13

supply side policy 5 uses

Answer 13

focuses on increasing AS
increases incentives
reform of the Labour Market
increase competition
increase productivity

Question 14

what do interventionists like about supply side policies ( 5 ) and what do right wing market based think

Answer 14

1. increased taxes
2. increased benefits
3. increased direct provision
4. increased grants and subsidies
5. increased infrastructure

the inverse of all

Question 15

7 examples of supply side policy

Answer 15

1. competition control
2. education, training, retraining
3. social capital investment
4. privatisation
5. deregulation
6. incentives
7. trade union reform

Question 16

4 AD factors that cause unemployment

Answer 16

1. High interest rate
2. global recession
3. negative multipliers
4. financial crisis

Question 17

5 AS factors that cause unemployment

Answer 17

1. frictional
2. structural
3. occupational
4. geographical
5. technological

Question 18

3 demand side policies

Answer 18

1. monetary
2. fiscal
3. depreciation of exchange rate

Question 19

5 supply side policies tor education unemployment

Answer 19

1. education and training
2. geographical subsidies
3. remove labour and market regulation
4. employment subsidies
5. lower minimum wage / reduce power trade unions