Macro3 Monetary / Fiscal Policy

Question 1

What is fiscal policy, what economic school of thought is it central to?

Answer 1

Government policy regarding spending and taxation.

Central to Keynesian economics for the ability to stimulate demand.

Question 2

Budget Surplus = ?
Budget Defecit = ?
Balanced Budget = ?

Answer 2

Surplus = Govt Rvenue > Expenditure
Defecit = Govt Rvenue < Expenditure
Balanced = Govt Revenue = Expenditure

Question 3

What are the three stances of fiscal policy?

Answer 3

Expansionary - Increased spending funded through borrowing (will increase demand but if economy is at capacity will create inflation)

Contractionary - Increased taxes without an increase in spending (can be done in order to take inflationary pressures out of the economy)

Neutral - Increased tax but also increased spending (diverts income from one part of the economy to another)

Question 4

What is the PSNCR?

Answer 4

Cash required by the public sector to finance its activities.

Positive - need to borrow
Negative - have excess cash and can repay debt

• Set by chancellor - dmo then have to raise this amount through Gilts

Question 5

What two forms can taxation take place in?

Answer 5

Direct and Indirect

Question 6

What is direct taxation?

Answer 6

Charges levied on income or wealth
(tend to increase as income, wealth or expenditure rises)

Question 7

Give 6 examples of direct taxation?

Answer 7

1) Capital Gains Tax
2) Income Tax
3) National Insurance
4) Inheritance Tax
5) Council Tax
6) Corporation Tax

Question 8

What is indirect taxation?

Answer 8

A charge levied on consumption and expenditure

It is regressive and reduces as income increases.

Question 9

Give two examples of Indirect taxation

Answer 9

1) VAT
2) SDRT

Question 10

What is monetary policy?

Answer 10

Decisions with regard to:
Interest Rates
Money Supply

Question 11

UK Monetary Policy:
Set by: ?
Inflation Target: ?
Tools: ?
Objectives: ?

Answer 11

Set by: MPC / BoE
Inflation Target: 2% (1% tolerance)
Tools: Base Rate & QE
Objectives: Meet government economic targets

Question 12

EU Monetary Policy:
Set by: ?
Inflation Target: ?
Tools: ?
Objectives: ?

Answer 12

Set by: ECB
Inflation Target: 2% (medium term)
Tools: Interest Rate and Financing (e.g. TLTRO)
Objectives: Maintain price stability (HICP 2%ish)

Question 13

US Monetary Policy:
Set by: ?
Inflation Target: ?
Tools: ?
Objectives: ?

Answer 13

Set by: The Fed
Inflation Target: 2% average over time
Tools: Discount Rate, Reserve requirements & Open market operations
Objectives Promote employment and stable prices

Question 14

China Monetary Policy:
Set by: ?
Inflation Target: ?
Tools: ?
Objectives: ?

Answer 14

Set by: PBoC
Inflation Target: 3%
Tools: OMO, reserve requirement ratio, loans to banks
Objectives: 1) Maintain currency stability 2) promoto economic growth

Question 15

India Monetary Policy:
Set by: ?
Inflation Target: ?
Tools: ?
Objectives: ?

Answer 15

Set by: RBI
Inflation Target: 4% (2% tolerane until 2026)
Tools: Repo Rate
Objectives: Maintain price stability

Question 16

RSA Monetary Policy:
Set by: ?
Inflation Target: ?
Tools: ?
Objectives: ?

Answer 16

Set by: MPC of SARB
Inflation Target: 3%-6%
Tools: Short term repo rate
Objectives: Protect rand value and achieve price stability