counter cyclical policies Flashcards
list the monetary policies
interest rates
money supply
exchange rates
lost fiscal policy
tax
government spending
define monetary policy
use of interest rates the money supply and or the exchange rate to achieve macroeconomic objectives
define expansionary monetary policy
cutting interest rates increase the money supply and or reducing the exchange rate to increase AD
define money supply
notes and coins in circulation and in bank accounts
list the reasons for interest
reward for risk
to account for inflation
to pay for the cost of recording the loan
what does monetary policy involve
the central bank taking action to influence the manipulated of interest rates the supply of money and credit and the exchange rate
what’s the role of the monetary policy committee of the bank of england
uses change in bank rate to achieve objectives for monetary policy
what’s a factor considered by the MPC when setting bank rate
how changes in exchange rate affect AD and macroeconomic policy objective
explain an example of expansionary monetary policy
reward for interest rates falls reward for saving hot money falls outflow of hot money Increases supply shifts right fall in the exchange rate so WPIDEC so Ad increase
define deficit budget
when planned govt income from taxation is lower than planned govt spending
explain how if cost of borrowing is reduced it increases AD
boosts consumer spending and investment spending by firms, reduce savings and consumer spendings increase even further
explain how if the exchange rate falls it’ll increase AD
boosts overseas demand for our exports making imports more expensive, encourages UK residents to switch to domestically produced goods and services reducing and giving a further boost consumer spending and investment
explain how lower interest rates increases AD
increase share prices rather then putting money in bank accounts people prefer to invest spare cash In shares to get higher return people feel wealthier and increase consumer spending
