Demand side policies

Question 1

What is the definition of monetary policy?

Answer 1

Use of change in the base rate of interest and money supply to influence rate of growth of AD and rate of price inflation

Question 2

What is contractionary and expansionary monetary policies?

Answer 2

Contractionary:
- bank rates increase
- consumer spending decreases
- investment decreases

Expansionary:
- cut in bank rate
- rise in AD

Question 3

What is the MPC?

Answer 3

• Monetary policy committee
• 9 members, 5 internal, 4 external
• Meet monthly
• Meet gov’s inflation target of 2%

Question 4

What is quantitative tightening/easing?

Answer 4

Easing:
- creates more money supply
- used money to purchase assets in economy (mostly gov bonds)

Tightening:
- reducing money supply
- selling bonds to private sector organisations

Question 5

What is fiscal policy?

Answer 5

Manipulation of government spending and taxation to change AD and achieve macroeconomic objectives

Question 6

What are direct and indirect taxes?

Answer 6

Direct = Levied on income, wealth and profits
Indirect = Levied on spending by consumers on goods and services

Question 7

What is the national debt and budget?

Answer 7

National debt = total outstanding debt that has accumulated over time
Budget deficit = G> T
Budget surplus = G<T