demand side policies - macro

Question 1

Monetary policy involves

Answer 1

interest rates and quantitative easing

Fiscal and monetary policy

Question 2

Fiscal policy involves

Answer 2

government spending and taxation

Question 3

Who has the responsibility of interest rates and money supply

Answer 3

Bank of England

Question 4

How often do they meet to adjust base rates?

Answer 4

Monthly

Question 5

Which economic indicators might be consulted before deciding on a change in base rate?

Answer 5

GDP, unemployment, exchange rates, house prices, the level of investment by firms and GDP growth in other countries

Question 6

Interest rate meaning

Answer 6

Interest rates are the cost of borrowing and the reward for saving

Question 7

What does quantitative easing achieve to do

Answer 7

boost the funds available for lending to businesses and firms

Question 8

What is monetary policy affected by

Answer 8

Size of change in intrest rates

Size of multiplier

Question 9

What is the meaning of fiscal policy

Answer 9

The manipulation of government spending, taxation and government borrowing to influence the level of economic activity.

Question 10

What is direct tax

Answer 10

Direct tax is imposed on the income of individuals or profits of businesses
Paid directly to government

Question 11

Direct tax example

Answer 11

Income tax
Corporation tax
Inheritance tax

Question 12

Indirect tax

Answer 12

Indirect tax is imposed on goods or services

Increase the price of that good or service

Question 13

Indirect tax example

Answer 13

Value Added Tax
Excise duty
Customs duty

Question 14

What does fiscal policy depend on

Answer 14

Size of change in government spending
Size of multiplier effects the size of the change in AD
Takes time to see effects

Question 15

Base rate meaning

Answer 15

the rate that the Bank charge commercial banks and discount houses.
Used to influence other interest rates

Question 16

Supply-side policy meaning

Answer 16

Policies that seek to improve the long-run productive potential of the economy

Question 17

What will a successful supply-side policy do

Answer 17

Shift country’s production possibility frontier to the left

Question 18

What do market-based supply-side policy do

Answer 18

allow the free market to operate with the government reducing its role in the market

Question 19

What do interventionist supply-side policy do

Answer 19

involve government intervention to tackle market failure

Question 20

Supply side - how does cutting income tax increase incentives

Answer 20

This should create incentives to work and expand the labour force
This may influence the inactive individuals to enter the labour force and boost output

Question 21

Supply-side - how does cutting corporation tax increase incentives

Answer 21

increases profit motive of firms which can be re-invested in capital

Question 22

Supply-side How does modification of welfare payments increase incentives

Answer 22

Widen gap between benefits and wages to boost work incentives

Question 23

Supply-side How does investment grants increase incentives

Answer 23

Offers incentives to invest in capital

Question 24

Supply-side How does regional policy increase incentives

Answer 24

Public investment

Provides incentives for firms to set up in depressed regions

Question 25

Supply-side How does deregulation increase competition

Answer 25

Opening markets to freer competition and removing barriers to entry should help to drive productivity gains and boost supply

Question 26

Supply-side How does privatisation increase competition

Answer 26

Minimisation of state control which can often be inefficient
This has been pursued by a number of (mainly Conservative) governments to privatise key areas of the economy in order to drive efficiency