last min cramp Flashcards
roles of financial markets
facilitate saving facilitate lending facilitate exchange provide a market for equity provide a forward market
a financial market
describes any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives.
different types of financial market failure
asymmetric info speculation and market bubble negative externalities moral hazard market rigging
fiscal policy
A demand side economic policy controlled by the government
2 tools:
changing tax rates
changing gov spending
expansionary fiscal policy is when
decreased tax rates and increased gov spending
contactionary fiscal policy is when
Increased tax rates and decreased gov spending
monetary policy is run by the
central bank
Monetary policy is when
the central bank manipulates the base interest rate or the money supply in order to influence aggregate demand.
effects of changing the base interest rate
savings
mortgages
investment
net exports
When inflation is below the target, the Bank of England is likely to…
Decrease the base interest rate in order to increase aggregate demand
If the inflation rate is above the target,
the Bank of England will pursue contractionary monetary policy. - increasing the base interest rate in order to decrease aggregate demand and reduce inflation.
what policy is likely to be adopted by the Bank of England if the inflation rate is below its target?
Expansionary monetary policy by decreasing the interest rate
during a recession
expansionary monetary policy by decreasing the base interest rate
Quantitative easing is when
the central bank buys financial assets such as bonds from high street banks. This increases the money supply for high street banks, which increases the amount of money that banks can lend.
