Flashcards#

Question 1

What is the multiplier effect?

Answer 1

When the initial injection into the circular flow causes a larger increase in real GDP

Question 2

What is the multiplier coefficient?

Answer 2

Final change in real GDP / Initial change in real GDP

Question 3

When is the multiplier high?

Answer 3

Project is labour intensive and when equipment is sourced domestically

Question 4

What is a negative multiplier effect?

Answer 4

When an initial withdrawel or leakage of spending in the circular flow leads to knock on effects as results in a bigger drop in GDP

Question 4

What is the calculation for simple multiplier

Answer 4

1/1-MPC

Question 5

What is the calculation to the advanced multiplier?

Answer 5

1/ sum of MPS + MPI + MPT

Question 6

What is a positive accelerator effect?

Answer 6

When an increase in the rate of demand leads to a rise in planned capital investment by businesses

Question 6

When is the multiplier high?

Answer 6

Economy has plenty of spare capacity to meet higher AD
MPT and MPI is low
MPC is high

Question 7

What does QE involve?

Answer 7

Creating money electronically to buy assets (mainly bonds) from financial institutions such as the major insurance companies, pension funds and comercial banks

Question 7

Order the events of QE

Answer 7

Creates money electronically and puts in on a balance sheet
–>
Purchases government bonds causing a price of bonds to increase
–>
This results in lower yields for bond owners so owners look for assets with larger yields such as stocks
–>
Commercial banks get money from these purchased assets and increases their liquidity.
–>banks lend out and stimulate economy

Question 8

What is current spending

Answer 8

Government spending on items from which we will benefit in the current financial year

Question 9

What is capital spending?

Answer 9

Government spending on items from which we will benefit in the future e.g infrastructure, education

Question 10

What are transfer payments?

Answer 10

Government payments to individuals in which no service is given in return e.g. benefits

Question 11

Define a trade off

Answer 11

A trade off is a situation where achieving one macroeconomic objective could lead to damagine another macroeconomic objective

Question 12

What is a an improvement in the current account?

Answer 12

When a deficit gets smaller or a surplus gets larger or we move from deficit to surplus

Question 13

What is a deterioration in the current account

Answer 13

When a deficit gets larger or a surplus gets smaller or we move from a surplus to a deficit

Question 14

Define fiscal policy

Answer 14

The use of government spending and tax to influence the pattern of economic activity and affect the level and growth of AD, output and employment

Question 15

Why is taxation used?

Answer 15

Provide public services
Influence AD
Influence spending patterns
Redistribute income and wealth
Protect jobs in UK - imports.

Question 16

What are the arguments against borrowing?

Answer 16

Cost
Intergenerational inequity

Question 17

What are the 6 canons of taxation

Answer 17

Equity
Economy
Certainty
Convenience
Efficiency
Flexibility

Question 18

What do the 6 canons of taxation mean?

Answer 18

Equity - based on ability to pay
Economy - more revenue then administration costs
Certainty - easy to calculate
Convenience - easy to pay
Efficiency - achieve what it is set out to achieve
Flexibility - tax should easily be able to change

Question 19

What is the rate of tax?

Answer 19

tax/income times 100

Question 20

What is progressive tax?

Answer 20

As incomes rise, the average rate of tax increases - pay a larger proportional amount based on income

Question 21

What is proportional tax?

Answer 21

As incomes rises, average rate of tax remains the same

Question 22

What is regressive tax?

Answer 22

As income rises, the average rate of tax falls - indirect taxes

Question 23

What is net primary income?

Answer 23

Investment income

Question 24

What is net secondary income?

Answer 24

Money paid by money to EU, IMF , WB