Macroeconomic policies Flashcards

1
Q

What are the 3 main economic policies?

A

Fiscal
Monetary
Supply-side

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

What is the fiscal policy?

A

Taxation and spending decisions of a government

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

What is reflationary fiscal policy?

A

Wants to increase AD

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

What is deflationary fiscal policy?

A

Wants to decrease AD

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

What is the monetary policy?

A

Decisions on the rate of interest, money supply and exchange rate

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

What is the supply-side policy?

A

Gov attempts to increase productivity and shift AS curve to the right, by improving the quality and quantity of the 4 factors of production

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

3 components to the budget?

A

Expenditure
Receipts
Borrowing Requirement

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

What is a good tax?

A

Generates revenue
Works in the way intended
Avoids undesirable side effects

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

3 types of government expenditure?

A

Capital expenditure
Current expenditure
Transfer payments

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

What is capital expenditure?

A

Improving capital stock of country

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

What is current expenditure?

A

Running public services

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

What are transfer payments?

A

Benefits

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

3 approaches to taxation?

A

Progressive
Proportional
Regressive

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

What is progressive tax?

A

Taxes rise as incomes rise

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

What is proportional tax?

A

Everyone pays the same tax

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

What is regressive tax?

A

Individuals taxes fall as their incomes rise

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

What are the 2 types of taxes?

A

Direct

Indirect

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

What is direct tax?

A

Levied on income of person who pays it

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

What is indirect tax?

A

Levied on goods and services

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

3 types of government budget position

A

Budget deficit
Budget surplus
Balanced budget

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

What do budget deficits aim to do?

A

They are expansionary- increase AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What does budget surplus’ aim to do?

A

They are deflationary- reduce AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What does a balanced budget aim to do?

A

It is neutral fiscal- not influencing AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Why does the gov operate budget deficits?

A

Cyclical- respond to economic cycle

Structural- deficit when economy at full employment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is a structural deficit?

A

Not related to the state of the economy

26
Q

What is a cyclical fiscal balance?

A

Influenced by the state of the economy

27
Q

What is it called when you choose to deliberately run a deficit?

A

Structural deficit

28
Q

Why might the gov run a cyclical deficit?

A

Tax revenues much lower

Spending is much higher

29
Q

What are automatic fiscal stabilisers?

A

In a recession, tax revenue falls but increased gov spending on benefits- stabilises economy

30
Q

What is a debt

A

Constant

Money you pay back

31
Q

What is a deficit

A

Current

32
Q

3 ways to solve deficit?

A

Increase tax levels
Austerity
Boost economic growth

33
Q

What is crowding out?

A

Strategy of fiscal policy to stimulate AD may not be effective

34
Q

2 common fiscal rules

A

Total gov debt no more than 60% of GDP

Gov deficit no more than 3% of GDP

35
Q

What are interest rates?

A

Main tool of monetary policy- the price we pay to borrow money

36
Q

What is quantitative easing?

A

Adopting a loose monetary policy to stimulate AD- increases money supply in economy

37
Q

What is an increase in interest rates called?

A

Deflationary monetary policy

38
Q

What is a decrease in interest rates called

A

Expansionary monetary policy

39
Q

What does increasing interest rates cause

A

Reduced:
Investment
Consumption
Exports-imports

40
Q

What does a decrease in interest rates cause?

A

Increased:
Investment
Consumption
Exports-imports

41
Q

What is hot money?

A

Businesses and investors moving money around the world for the best return

42
Q

What are exchange rates?

A

The price of one country’s currency in terms of another country’s currency

43
Q

What do free market supply side policies do?

A

Increase competitiveness

44
Q

What do interventionist supply side policies do?

A

Gov intervention to overcome market failure

45
Q

Examples of free market policies

A

Privatisation
Deregulation
Reducing unemployment benefits
Deregulate labour markets

46
Q

Examples of interventionist policies?

A

Increased education and training
Improving infrastructure and transport
Improved healthcare

47
Q

What does life stand for

A

Labour
Industry
Finance
Enterprise

48
Q

What does epic stand for?

A

Efficiency
Productivity
Incentives
Competition

49
Q

Economic growth vs inflation

A

We want high growth and low inflation but they inflict each other

50
Q

Economic growth vs current account

A

More spending on imports when economic growth is high- this worsens current account deficit

51
Q

Economic growth vs government budget deficit

A

Reducing the budget deficit requires less expenditure- fall in AD

52
Q

Economic growth vs environment

A

Pollution due to more manufacture

53
Q

Economic growth vs inequality

A

Better off people are able to take advantage of more opportunities

54
Q

Unemployment vs inflation

A

Economic growth increases, unemployment falls, but wages increase - real wage inflation

55
Q

Environment vs competitiveness

A

“Green taxes” could compromise competitiveness of firms- limited in production

56
Q

Progressive taxes vs inflation

A

Taxes to reduce inequality could cause higher rates of inflation

57
Q

Fiscal vs monetary policy

A

Expansionary fiscal policies, could mean more government borrowing, rising interest rates and inflation

58
Q

Interest rates vs inequality

A

Low interest rate could affect distribution of income

59
Q

Transition mechanism

A

Interest rates —> borrowing of individuals and firms
Individuals—> credit and loans = consumption
Firms—> new loans = investment
Existing loans—> costs —> margins and employment = consumption

60
Q

expansionary monetary policy is most likely to

A

shift the AD curve right

61
Q

a rise in the level of domestic investment will most likely result from a rise in…

A

company profits

62
Q

a large rise in interest rates are most likely to increase….

A

unemployment