Economic Environment

Question 1

Fiscal policy

Answer 1

Use of government spending and taxation to influence economic activity (eg cut taxes to stimulate demand)

Question 2

Monetary policy

Answer 2

Attempt to stabilise economy through interest rates and money supply

Question 3

MO - Narrow money

Answer 3

Notes and coins in circulation plus banks’ operational deposits with the
Bank of England

Question 4

M4 - Broad Money

Answer 4

Notes and coins in circulation plus the bank accounts of UK residents with
UK banks and building societies and deposits created by banks and building societies through lending activity

Question 5

Disinflation

Answer 5

Decrease in rate of inflation (prices still rising but at a slowing rate)

Question 6

Deflation

Answer 6

Prices declining over time and inflation becomes negative

Consumers defer purchases and manufacturers reduce output

Question 7

Balance of payments

Answer 7

Record of country’s trade transactions with rest of world (receipts and payments) - any deficit on the current account must be made up by the capital account

Question 8

Main characteristics of a Monopoly

Answer 8

One producer

No clear substitute for the product or service

High entry barriers