Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Theme 2 Economics > Macroeconomic Objectives > Flashcards

Macroeconomic Objectives Flashcards

1
Q

What are the 7 macroeconomic objectives?

A

Improve economic growth, decrease unemployment, maintain inflation around 2%, keep BoP in equilibrium, decrease debt, inequality decreases, sustainability increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What do the MPC do?

A

Monetary policy committee, decide base rate for interest (repo rate)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the impact of a rise in interest rates on AD?

A

Increases cost of borrowing and increases incentive to save, so reduces AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the impact of a rise in interest rates on the housing markets?

A

Short-run loss of demand so negative wealth effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What can be an example of a negative wealth effect ?

A

A fall in demand for shares, stocks and bands - leads to a fall in prices for these assets ( negative wealth effect )

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why does a rise in interest rates lower confidence on borrowing?

A

Greater risk + spending reduces confidence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the negative effect of debt on a rise on interest rates which impacts AD?

A

Increased debt on loans, more income spent on these loans which reduces AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the impact of an increase in interest rates on the value of the pound?

A

Increased incentive for foreigners to hold money in British Banks as greater rewards, rise in demand for the £ which increases the value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Issues of using tight interest rates to boost the value of the pound?

A

A value of the pound increasing will worsen the BoP deficit in the long run, in the short-run it improves though

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Issues with using loose monetary policy?

A

Liquidity trap, lack of confidence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Overall impact of a rise in interest rates (tight monetary policy) on the economy

A

Increased cost of borrowing/greater reward for saving - reduced AD and inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is Quantitive Easing?

A

The Bank of England create money electronically to buy bonds/assets, increased demand do bonds/assets price rise. Rise in price reduces interest return, causing a drop in interest rates which reduces incentive to save and costs of borrowing. As a result, investment and consumption increases which leads to an increase in AD, so provides a major fiscal stimulus.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the risks of Quantitive easing?

A

If not done correctly, can cause hyperinflation as money supply increases rapidly so value falls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Why is there in guarantee over the effectiveness of Quantitive easing?

A

No guarantee that higher asset prices lead to higher consumption - if given to rich likely to reinvest as lower MPC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the issues with QE?

A

Hurts first-time buyers as house prices rise due to increased demand, increased asset value worsens inequality, can lead to an over dependence on QE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the Role of the Bank of England?

A

Monetary Policy Committee, use monetary policy to control economy - aim to keep inflation at 2%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is direct taxation?

A

Paid directly to the government (income tax - 25% of all revenue)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is indirect taxation?

A

Person charged can pass costs to someone else (I.e VAT)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Negative impacts of deflationary fiscal policy on LRAS

A

Cut in spending can reduce quality of education/training, reducing LRAS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Negative impacts of tight fiscal policy on inequality?

A

Increased inequality due to higher regressive taxes, also lowers incentives to work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the other issues with fiscal policy?

A

Political issues, also reliant on the size of the multiplier - greater the size, greater the impact on AD

22
Q

Evaluation of demand-side policies on long run output

A

Argument that it will have no effect on the long-run output, Keynesian LRAS argues the impact of changes in AD depends on where the economy is operating

23
Q

Other evaluations of demand-side policy

A

Time lag, conflicts of objectives - expansionary worsens inflation and contractionary worsens unemployment

24
Q

What is the advantage of using monetary policy over fiscal policy?

A

Monetary is useful as can help increase demand without increasing spending, so doesn’t worsen the deficit

25
Q

What is the advantage of using fiscal policy over monetary policy?

A

Fiscal is more useful in targeting specific groups and reducing poverty

26
Q

What are market-based supply side policies?

A

Policies which are designed to remove anything that prevents the free market working efficiently

27
Q

What are examples of market based supply side policies?

A

Privatisation, deregulation, income tax cuts,reduced welfare benefits, flexible labour markets)

28
Q

What are interventionist supply-side policies?

A

Policies designed to correct market failure

29
Q

What are some examples of interventionist supply-side policies?

A

Education, training, housing supply, investment into the public sector

30
Q

What incentives can be used to increase the size of the workforce?

A

Reduction in benefits/taxes, prevent unemployment trap, free childcare, removal of a minimum wage ( incentivises firms to employ )

31
Q

How can the government increase incentives for risk taking?

A

Lower taxes, so lower risk and bigger return on investment

32
Q

What are the problems with government trying to encourage incentive to work?

A

If changes are small/offers not useful, will have little impact on incentivising work

33
Q

How can the government use supply-side policy to promote competition?

A

Deregulation/Privatisation increases competition, competition policy makes cartels illegal

34
Q

What are the issues with the government using supply-side policies to promote competition?

A

Quality of service may decrease as government constricting firms growth

35
Q

What supply-side policies can the government use to reform the labour market?

A

Increase the retirement age, increase flexibility of labour market ( weaken trade unions, improve mobility of labour by providing affordable housing and advertising of job vacancies), scrap minimum wage to increase employment, reduction of benefits

36
Q

What could be a potential issue with the government scrapping/reducing the minimum wage as a supply-side policy?

A

May lead to the unemployment trap, where wages are so low that people would rather stay unemployed

37
Q

What are some of the issues with the government reforming the labour market as a supply-side policy?

A

Can worsen inequality, poorer have larger MPC so reducing their income may reduce AD

38
Q

How could the government improve skills/quality of the labour force?

A

Increase spending on education/training, increase regulation (to force training), allow high skilled migrants, increase efficiency

39
Q

What are some of the issues with the government trying to improve the skill/quality of the labour force as a supply side policy?

A

Opportunity cost, time-lag, investment may be done poorly and not benefit supply

40
Q

How would the government improve infrastructure, and what would the impact of this be?

A

Government spending, can use improved technology which increases efficiency - firms benefit from external EoS, improved geographical mobility

41
Q

What are some of the problems of the government improving infrastructure as a supply side policy?

A

Worsens debt, can be a long-time, expensive to build

42
Q

What are the overall benefits of supply side policies?

A

Able to increase output and decrease prices, more sustainable in the long term , improve BoP as exports more efficient

43
Q

How does Keynesian LRAS argue against the use of supply-side policies?

A

Shows that they have no impact when LRAS is elastic - demand - side policies must be used as supply is already available

44
Q

What are some of the overall negative impacts of the use of supply-side policies?

A

Not guaranteed success, can lead to a budget deficit if spending is on them, can cause inflation and unemployment, little impact in the short-term

45
Q

Issues with using expansionary policies?

A

Increases inflation, worsens the BoP

46
Q

Issues with using contractionary policies?

A

Increases unemployment, decreases economic growth

47
Q

Issues with rising interest rates ?

A

Can damage long-term investment as less incentive to invest, distribution of wealth worsens as richer/older people generally have more savings, competitiveness of exports worsens as value of the £ strengthens

48
Q

Issues with lowering interest rates

A

Inequality increases as rich have more assets

49
Q

Issues with using supply-side policies

A

May increase inflation in the short-term, worsens workers rights, damage environmental issues

50
Q

Evaluation of expansionary fiscal/monetary policies

A

Output gap size, nature of growth, policy used

51
Q

Evaluation of contractionary fiscal/monetary policies

A

Output gap size (only useful in positive output gap), Laffer curve ideas, policy used

52
Q

Evaluation of supply-side policies

A

LR/SR, in recession not useful, worsens deficit, income inequality, environment

Theme 2 Economics (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions