Lesson 14 - Monetary Policy

Question 1

What is monetary policy?

Answer 1

monetary weapons such as quantitative easing and interest rates being used to control inflation and deliver the conditions needed for growth

Question 2

What is progressive tax?

Answer 2

The rich pay proportionally more tax

Question 3

What is regressive tax?

Answer 3

The poor pay proportionally more

Question 4

What is expansionary monetary policy?

Answer 4

• lowering interest rates
• quantitative easing (creating electronic money to give banks liquidity and enable them to give out loans and boost AD)

Question 5

What is contractionary monetary policy?

Answer 5

• increasing interest rates
• quantitative tightening

Question 6

What are the causes and consequences of unemployment?

Answer 6

Causes
- lack of demand
- high benefits (voluntary)
- no need for skills
- in between jobs

Consequences
- falling living standards
- automatic fiscal implications

Question 7

What are the causes and consequences of inflation?

Answer 7

Causes
- high costs for firms
- too much demand
- high priced imports
- too much money supply

Consequences
- wage squeeze
- inflationary noise
- wage price spiral

Question 8

What are the causes and consequences of a global recession?

Answer 8

Causes
- high oil prices (global shocks)

Consequences
- demand leaks abroad
- less growth
- unemployment

Question 9

What are the causes and consequences of a BoP deficit?

Answer 9

Causes
- lack of productivity, leading to being less competitive
- strong pound

Consequences
- imported inflation
- demand and jobs leak abroad

Question 10

What are the monetary solutions and issues with unemployment?

Answer 10

Solutions
- expansionary (lower interest rates, quantitative easing)

Issues
- savers suffer
- weakens the currency, which can lead to imported inflation
- danger of demand pull inflation

Question 11

What are the monetary solutions and issues with inflation?

Answer 11

Solutions
- contractionary (increase interest rates)
- strengthen the pound

Issues
- danger of a hard landing
- price of exports increases

Question 12

What are the monetary solutions and issues with a global recession?

Answer 12

Solutions
- expansionary (lower interest rates, quantitative easing)

Issues
- danger of demand pull inflation
- savers suffer

Question 13

What are the monetary solutions and issues with a BoP deficit?

Answer 13

Solutions
- supply side (lower interest rates to encourage investment)

Issues
- danger of unemployment
- firms may not borrow if they are nervous