Economic policy chap19

Question 1

What is the Monetary policy?

Answer 1

It is the manipulation of the level of demand in the economy using the interest rate

Question 2

Effects of a rise in interest rates…

Answer 2

• Investment will fall
• Consumer spending will fall
• Exchange rate is likely to rise

Question 3

Effects of a fall in interest rates…

Answer 3

• Investment will increase
• Consumer spending will increase
• Exchange rate is likely to fall

Question 4

Credit crunch…

Answer 4

• Reverse policy of ‘easy loans for all’

- Bank of England lower interest rates to make it easier (cheaper) to repay loans

Question 5

Direct taxes vs indirect taxes

Answer 5

Direct
- taken directly out of a persons income or a company
Indirect
- not paid when a person or business earns money but when they spend it.
- VAT is a form of indirect tax

Question 6

What is public spending?

Answer 6

Money spent by the government to intervene in the economy.

Question 7

Why may a government choose public spending?

Answer 7

1. to provide essential services that the private sector is unlikely to offer e.g education
2. to influence the level of demand in the economy
3. to assist certain regions in the UK e.g areas where there are high levels of unemployment

Question 8

What is regional policy?

Answer 8

government financial assistance to try encourage businesses into regions where economic activity is low

Question 9

What are supply side policies

Answer 9

Supply-side policies include a range of policies designed to reduce costs, improve efficiency, productivity, and international competitiveness so that the economy can grow without experiencing inflation.

Question 10

Examples of supply side policies…

Answer 10

• encouraging business start ups
• reducing welfare benefits
• improve education and training
• income tax cuts