Economic Policy And Financial Regulation Flashcards
The European union has issued a new regulation. This means that each member state
A) has the choice whether or not to adopt the regulation
B) must pass legislation to implement the regulation within two years
C) is bound by the regulation in its entirety regardless of existing legislation.
D) has the choice of how to adopt the regulations objectives.
C) is bound by the regulation in its entirety regardless of existing legislation.
A,B,D refer to directives.
What is meant by macroeconomic objective?
An objective that relates to the economy as a whole rather than to a specific sector or individual company.
What are the four key macroeconomic objectives that UK governments seek to achieve?
Price Stability - low and controlled rate of inflation (2% target in UK)
Low unemployment - involves expanding the economy so that there is more demand for labour, land and capital.
Balance of payments equilibrium - a situation in which expenditure on imports, services and investment income going abroad is equal to the income received from exports of the same. The exchange rate of the country is linked to the balance of payments, most governments aim to keep price of currency stable so not to discourage exports but not so low to increase inflation.
Satisfactory economic growth - the output of the economy is growing in real terms and standards of living are getting higher.
What is a potential negative consequence of expanding economic growth to reduce unemployment?
Measures taken to expand the economy (reducing interest rates and/or inflation) increase the demand for goods and services, which is likely to result in a rise in inflation.
All governments aim to achieve zero inflation. True or false?
False
They aim to keep prices stable but seeking to reduce inflation to zero is likely to increase unemployment.
What is the UK government’s inflation target and how is it measured?
2% with a maximum divergence of 1%
It is measured by the consumer price index.
Disinflation means -
A) prices are rising faster than previously.
B) prices are falling.
C) prices are rising but more slowly than previously.
D) prices are staying the same.
C) prices are rising but more slowly than previously.
In June the Monetary Policy Committee (MPC) decides to raise the bank base rate by half a percentage point. In August, Paul and Amanda’s mortgage payments increase. Explain how these two events are likely linked.
Paul and Amanda must have a variable rate mortgage, so the amount they pay each month is likley to rise and fall broadly in line with changes with the bank rate.
Which of the following economic measures taken by a government would not help to achieve a budget surplus?
A) increasing taxation
B) increasing public spending
C) reducing public spending
B) increasing public spending
To achieve a surplus the government must cut public spending, raise taxes, or both.
A new peice of EU legislation is being introduced. It is being implemented at the same time and in exactly the same way across all member states. This indicates that the legislation is in the form of -
A) a directive
B) a regulation
B) a regulation
Member states have flexibility in the way they introduce directives.
Which EU body is responsible for monitoring the financial system for systematic risk and taking steps to reduce it?
The European Systematic Risk Board
ESRB
