fiscal and monetary affect debt Flashcards
What are the two types of fiscal policy?
Expansionary fiscal policy- the use of taxes, public spending and government borrowing to stimulate the economy and increase AD.
Deflationary fiscal policy- the rise of taxation and reduced public expenditure to reduce the level of AD in the economy.
What is Demand management?
When taxation and government spending were used as well as other approaches such as monetary policy, to manage demand.
What is the impact of expansionary fiscal policy on fiscal balance?
Reduces taxes to stimulate spending and investment. Increase public expenditure,
Increased public sector borrowing- leads to higher fiscal debt.
Increased AD
What is the impact of deflationary fiscal policy on fiscal balance?
Increase taxes to discourage consumer spending. Reduce public expenditure.
Reduced public sector borrowing- leads to lower fiscal debt or fiscal surplus
Reduced AD
What effect can fiscal policy have on poverty and inequality?
Welfare benefits
Provisions of certain goods and services
Progressive taxes- narrow the gap between peoples disposable incomes
What impact does expansionary fiscal policy have on national debt?
Increased fiscal deficit which leads to increased national debt
What impact does expansionary fiscal policy have on national debt?
Increased fiscal deficit which leads to increased national debt
What is monetary policy?
Monetary policy involves decisions on interest rates, the money supply and exchange rates.
What impact has globalisation had on policy makers and reaching goals?
It is now more difficult as decisions and changes around the world cause changes in other countries such as growth in china has pushed up prices of commodities, including food, causing cost push inflation.
What is the aim of monetary policy?
To keep inflation between 1% and 3%
What are the aims of supply side policies?
To increase the productive potential of the country and therefore increase its long-run aggregate supply
How do supply-side policies increase economic development? What do they include?
Improving education
Improving healthcare
Advocating entrepreneurship
Encourage increased labour force participation
What are the effects of supply-side policies?
Improved international competitiveness due to improved competitiveness, which leads to lower average costs for firms.
Improved competitiveness should lead to increased exports and less reliance on imports, leading to higher economic growth and lower unemployment.
What polices can the Government and bank of England use to reach their goals?
Exchange rates
Direct controls
Monetary policy
Supply side policy
Fiscal policy
What is the impact of exchange rate policies?
Effecting international competitiveness and can increase/decrease imports and can also increase/decrease exports.
What are direct controls?
Forms of control that work outside the market system. They are a government measure that is imposed on the price or quantity of a product or a factor of production.
What are examples of direct controls?
Maximum price controls
minimum guaranteed prices
fixing quotas on imports
limiting the amount of foreign currency that citizens can buy in a year
Fixing max interest rates that payday lenders can charge their customers.
What problems face policy makers?
Inaccurate or out of date information
Risks and uncertainties
Inability to control external shocks
Measures to control transnational companies?
Requirement to use local factors
Requirement that global companies exports a certain proportion of its output
Requirement to set up joint ventures
Transfer pricing
