Economic policy

Question 1

Define monetary policy

Answer 1

The manipulation of interest rates, credit, and the money supply in order to manipulate AD

Question 2

What are the tools of monetary policy

Answer 2

Interest rates
Credit controls
Direct money supply controls

Question 3

Define fiscal policy

Answer 3

The manipulation of the government’s budget through spending and taxation in order to manipulate AD

Question 4

Define supply side policies

Answer 4

Policies that increase the quality and quantity of the FOP in order to increase the level of AS in the economy ( and increase the economic capacity )

Question 5

What are the aims of supply side policies?

Answer 5

Reducing tax and national insurance
Reducing benefits
Privatisation
Reducing red tape - encourages business and innovation
Removal of government intervention in business

Question 6

Define exchange rate policies

Answer 6

The manipulation of the supply of a currency and IR in order to affect the exchange rate

Question 7

How can the government affect the exchange rate

Answer 7

Buying and selling large amounts of the currency itself

Changing IR compared to the rest of the world