fiscal and monetary affect debt

Question 1

What are the two types of fiscal policy?

Answer 1

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.

Question 2

What is Demand management?

Answer 2

When taxation and government spending were used as well as other approaches such as monetary policy, to manage demand.

Question 3

What is the impact of expansionary fiscal policy on fiscal balance?

Answer 3

Reduces taxes to stimulate spending and investment. Increase public expenditure,

Increased public sector borrowing- leads to higher fiscal debt.
Increased AD

Question 4

What is the impact of deflationary fiscal policy on fiscal balance?

Answer 4

Increase taxes to discourage consumer spending. Reduce public expenditure.

Reduced public sector borrowing- leads to lower fiscal debt or fiscal surplus
Reduced AD

Question 5

What effect can fiscal policy have on poverty and inequality?

Answer 5

Welfare benefits
Provisions of certain goods and services
Progressive taxes- narrow the gap between peoples disposable incomes

Question 6

What impact does expansionary fiscal policy have on national debt?

Answer 6

Increased fiscal deficit which leads to increased national debt

Question 7

What impact does expansionary fiscal policy have on national debt?

Answer 7

Increased fiscal deficit which leads to increased national debt

Question 8

What is monetary policy?

Answer 8

Monetary policy involves decisions on interest rates, the money supply and exchange rates.

Question 9

What impact has globalisation had on policy makers and reaching goals?

Answer 9

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.

Question 10

What is the aim of monetary policy?

Answer 10

To keep inflation between 1% and 3%

Question 11

What are the aims of supply side policies?

Answer 11

To increase the productive potential of the country and therefore increase its long-run aggregate supply

Question 12

How do supply-side policies increase economic development? What do they include?

Answer 12

Improving education
Improving healthcare
Advocating entrepreneurship
Encourage increased labour force participation

Question 13

What are the effects of supply-side policies?

Answer 13

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.

Question 14

What polices can the Government and bank of England use to reach their goals?

Answer 14

Exchange rates
Direct controls
Monetary policy
Supply side policy
Fiscal policy

Question 15

What is the impact of exchange rate policies?

Answer 15

Effecting international competitiveness and can increase/decrease imports and can also increase/decrease exports.

Question 16

What are direct controls?

Answer 16

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.

Question 17

What are examples of direct controls?

Answer 17

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.

Question 18

What problems face policy makers?

Answer 18

Inaccurate or out of date information

Risks and uncertainties

Inability to control external shocks

Question 19

Measures to control transnational companies?

Answer 19

Requirement to use local factors

Requirement that global companies exports a certain proportion of its output

Requirement to set up joint ventures

Transfer pricing