Macroeconomic policies

Question 1

What are the 3 main economic policies?

Answer 1

Fiscal
Monetary
Supply-side

Question 2

What is the fiscal policy?

Answer 2

Taxation and spending decisions of a government

Question 3

What is reflationary fiscal policy?

Answer 3

Wants to increase AD

Question 4

What is deflationary fiscal policy?

Answer 4

Wants to decrease AD

Question 5

What is the monetary policy?

Answer 5

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

Question 6

What is the supply-side policy?

Answer 6

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

Question 7

3 components to the budget?

Answer 7

Expenditure
Receipts
Borrowing Requirement

Question 8

What is a good tax?

Answer 8

Generates revenue
Works in the way intended
Avoids undesirable side effects

Question 9

3 types of government expenditure?

Answer 9

Capital expenditure
Current expenditure
Transfer payments

Question 10

What is capital expenditure?

Answer 10

Improving capital stock of country

Question 11

What is current expenditure?

Answer 11

Running public services

Question 12

What are transfer payments?

Answer 12

Benefits

Question 13

3 approaches to taxation?

Answer 13

Progressive
Proportional
Regressive

Question 14

What is progressive tax?

Answer 14

Taxes rise as incomes rise

Question 15

What is proportional tax?

Answer 15

Everyone pays the same tax

Question 16

What is regressive tax?

Answer 16

Individuals taxes fall as their incomes rise

Question 17

What are the 2 types of taxes?

Answer 17

Direct

Indirect

Question 18

What is direct tax?

Answer 18

Levied on income of person who pays it

Question 19

What is indirect tax?

Answer 19

Levied on goods and services

Question 20

3 types of government budget position

Answer 20

Budget deficit
Budget surplus
Balanced budget

Question 21

What do budget deficits aim to do?

Answer 21

They are expansionary- increase AD

Question 22

What does budget surplus’ aim to do?

Answer 22

They are deflationary- reduce AD

Question 23

What does a balanced budget aim to do?

Answer 23

It is neutral fiscal- not influencing AD

Question 24

Why does the gov operate budget deficits?

Answer 24

Cyclical- respond to economic cycle

Structural- deficit when economy at full employment

Question 25

What is a structural deficit?

Answer 25

Not related to the state of the economy

Question 26

What is a cyclical fiscal balance?

Answer 26

Influenced by the state of the economy

Question 27

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

Answer 27

Structural deficit

Question 28

Why might the gov run a cyclical deficit?

Answer 28

Tax revenues much lower | Spending is much higher

Question 29

What are automatic fiscal stabilisers?

Answer 29

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

Question 30

What is a debt

Answer 30

Constant | Money you pay back

Question 31

What is a deficit

Answer 31

Current

Question 32

3 ways to solve deficit?

Answer 32

Increase tax levels Austerity Boost economic growth

Question 33

What is crowding out?

Answer 33

Strategy of fiscal policy to stimulate AD may not be effective

Question 34

2 common fiscal rules

Answer 34

Total gov debt no more than 60% of GDP | Gov deficit no more than 3% of GDP

Question 35

What are interest rates?

Answer 35

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

Question 36

What is quantitative easing?

Answer 36

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

Question 37

What is an increase in interest rates called?

Answer 37

Deflationary monetary policy

Question 38

What is a decrease in interest rates called

Answer 38

Expansionary monetary policy

Question 39

What does increasing interest rates cause

Answer 39

Reduced: Investment Consumption Exports-imports

Question 40

What does a decrease in interest rates cause?

Answer 40

Increased: Investment Consumption Exports-imports

Question 41

What is hot money?

Answer 41

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

Question 42

What are exchange rates?

Answer 42

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

Question 43

What do free market supply side policies do?

Answer 43

Increase competitiveness

Question 44

What do interventionist supply side policies do?

Answer 44

Gov intervention to overcome market failure

Question 45

Examples of free market policies

Answer 45

Privatisation Deregulation Reducing unemployment benefits Deregulate labour markets

Question 46

Examples of interventionist policies?

Answer 46

Increased education and training Improving infrastructure and transport Improved healthcare

Question 47

What does life stand for

Answer 47

Labour Industry Finance Enterprise

Question 48

What does epic stand for?

Answer 48

Efficiency Productivity Incentives Competition

Question 49

Economic growth vs inflation

Answer 49

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

Question 50

Economic growth vs current account

Answer 50

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

Question 51

Economic growth vs government budget deficit

Answer 51

Reducing the budget deficit requires less expenditure- fall in AD

Question 52

Economic growth vs environment

Answer 52

Pollution due to more manufacture

Question 53

Economic growth vs inequality

Answer 53

Better off people are able to take advantage of more opportunities

Question 54

Unemployment vs inflation

Answer 54

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

Question 55

Environment vs competitiveness

Answer 55

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

Question 56

Progressive taxes vs inflation

Answer 56

Taxes to reduce inequality could cause higher rates of inflation

Question 57

Fiscal vs monetary policy

Answer 57

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

Question 58

Interest rates vs inequality

Answer 58

Low interest rate could affect distribution of income

Question 59

Transition mechanism

Answer 59

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

Question 60

expansionary monetary policy is most likely to

Answer 60

shift the AD curve right

Question 61

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

Answer 61

company profits

Question 62

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

Answer 62

unemployment