CHAPTER 38 DEMAND SIDE POLITICS

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

Exansionary fiscal tax

Answer 9

Fiscal policy which leads to an increase in aggregate demand.

Question 10

Expansionary monetary tax

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 exansionary, 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 dept

Answer 16

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

Question 17

Neutral fiscal policy

Answer 17

When changes to government spending and taxation leave the overall budget surplus or deficit unchanged and have no effect on aggregate demand

Question 18

Public sector net borrowing (PSNB)

Answer 18

The office name given to the difference between government spending and its receipts

Question 19

Public sector net dept (PSND)

Answer 19

The office name given to the national dept in the UK

Question 20

Quantitative easing

Answer 20

A monetary policy instrument where the central bank buys financial assets in exchange for money in order to increase borrowing and lending in the economy

Question 21

Rate of interest

Answer 21

The price of money, determined by the demand and supply of funds in a money market where there are borrowers and lenders