Governemnt Objectives Flashcards

1
Q

Direct tax

A

tax payed directly to the government

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2
Q

What is a government bond

A

a security which the government will pay the value of on the maturity date to the holder od the bond

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3
Q

where are bonds traded

A

sold on the primary financial markets and are then traided on secondary capital markets

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4
Q

what are bonds

A

the coupon of a bond is the rate regualr interest payment

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5
Q

Deflation

A

a sustained decrease in the general price level

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6
Q

deflationary spiral

A

AD shifts left

consumption and Inflation rate decreases

AD shifts left again

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7
Q

Benign Deflation

A

When a firms cost decreases and SRAS shifts left

This is a good result of an increase in output/ productivity

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8
Q

Malign Deflation

A

Fall in confidence by firms and households demand decreases

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9
Q

Difference between real and nominal income

A

nominal is adjusted for inflation

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10
Q

Inflation rate

A

% change in the price level

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11
Q

CPI

A
  • basked of the most commonly consumed 650 goods in the economy
  • Weighted
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12
Q

Office of national statistics living costs and food survey

A

7000 households are asked the most common good

% income spent in the economy

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13
Q

Process of finalising the price level

A

1- survey ‘office of national statistics costs and food survey’

2- price analysis to find the average price

3- weighted average of all prices

this leaves us the price level

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14
Q

Index EQ

A

Current Number / Base number X 100

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15
Q

Disinflation

A

Inflation is falling but still positive

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16
Q

4 challenges with CPI

A
  • Unsusal spending habits
  • changes in quality
  • time lag
  • doesn’t include mortgages
17
Q

Time lag as a challenge of CPI

A

COVID

As CPI is annual due to covid changing consumption CPI was out of date

18
Q

Changes in quality an example of a challenge with CPI

A

Consumers might purchase a higher quality product which might benefit consumption and does not represent inflation

18
Q

Morgage

A

A Mortgage is loan for a house which repayments is available to be payed and are variable based on interest rate

19
Q

RPI vs CPI

A

RPI includes mortgage repayments

(not all of the population ownes homes)

20
Q

Inflation

A

where there is a sustained increase in the price level

21
Q

Demand Pull Inflation

A

When an increase in AD lead to an increase in the price level causing inflation

22
Q

Main dagner of negative inflation

A

Deflationary spiral

When prices fall and consumers choose to delay their purchases

23
Q

Price wage spiral

A

High inflation

workers negotiate higher wages

this leads to higher costs of production

higher costs of goods (inflation)

24
Impact of inflation on wages
lower real costs of employment decreased real wages the govt saves money and then can invest money and invest in other forms
25
How can inflation increase the risk of investment
If inflation is high profits will become more unpredictable which means investment mist increase with risk this is referred to as heard behaviour
26
Pros of inflation
1 protect from deflationary spiral 2 lower value of dept 3 decreases real wages
27
Con of inflation
1 lead to price wage spiral 2 lower value of money leads to a lower value of savings 3 lower inflation
28
target of inflation
2% of inflation plus minus 1%
29
4 macro objectives + 2 more
-inflation on target -full employment -balance of trade -steady growth -balanced budget -inequality
30
How do we measure output
real GDP
31
Real GDP
made from the quality of goods and services value adjusted for infatlion
32
Why is real GDP misleading
fails to show the affluence of members of UK population UK GDP- 3.34 trillion
33
Big Mac index
cost of a Big Mac in differnt countries
34