CHAPTER 38 DEMAND SIDE POLICIES

Question 1

Balanced budget

Answer 1

A statement of spending and income plans by the government where spending is equal to its receipts, mainly tax revenues.

Question 2

Bank of England base rate

Answer 2

The rate of interest charged by the bank of England to banks to borrow money overnight. It is the most important interest rate in the UK’s financial system because it influences other interest rates in the UK such as saving rates and rates on interest on loans by banks.

Question 3

Budget

Answer 3

A statement of the spending and income plans of an individual firm or government. The budget is the yearly statement on government spending and taxation plans in the UK.

Question 4

Budget deficit

Answer 4

A deficit which arises because government spending is greater than its receipts. Government therefore has to borrow money to finance the difference.

Question 5

Budget surplus

Answer 5

A government surplus arising from government spending being less than its receipts. Government can use the difference to repay part of the national dept.

Question 6

Contractionary fiscal policy

Answer 6

Fiscal policy which leads to a fall in aggregate demand

Question 7

Contractionary monetary policy

Answer 7

Monetary policy which leads to a fall in aggregate demand

Question 8

Direct tax

Answer 8

A tax levied directly on individuals or companies such as income tax or corporation tax

Question 9

Expansionary fiscal policy

Answer 9

Fiscal policy which leads to an increase in aggregate demand

Question 10

Expansionary monetary policy

Answer 10

Monetary policy which leads to a rise in aggregate demand

Question 11

Fiscal policy

Answer 11

The use of taxes, government spending and government borrowing by government to achieve its objective

Question 12

Fiscal stance or budget position

Answer 12

Whether fiscal policy is expansionary, Contractionary or neutral

Question 13

Indirect tax

Answer 13

A tax levied on goods and services, such as value added tax, excise duties or council tax

Question 14

Instrument of policy

Answer 14

An economic variable, such as the rate of interest, income tax rate or government spending on education, which is used to achieve a target of government policy

Question 15

Monetary policy

Answer 15

The manipulation by government of monetary variables, such as interest rates and the money supply, to achieve its objectives

Question 16

National debt

Answer 16

The total accumulated borrowing of government which remains to be paid to lenders

Question 17

Rate of interest

Answer 17

the percentage usually on an annual basis that is paid by the borrower to the lender for a loan of money.

Question 18

Neutral fiscal policy

Answer 18

The idea that a tax should not distort economic behaviour