Macroeconomics

Question 1

What is fiscal Policy

Answer 1

Gov. manipulation of spending and taxation and the budget balance in order to stabilise the economy
E.g subsidise training

Question 2

What is expansionary fiscal policy

Answer 2

Aims to increase AD, Increase GS or reduce taxes - worsening of the budget deficit

Question 3

What is contractionary fiscal policy

Answer 3

Aims to decrease AD, Cut spending or increase taxes - improvement of budge deficit

Question 4

Limitations of fiscal policy

Answer 4

-Imperfect info about economy
-Time lag with employing fiscal policy
-Gov borrow from private sector through taxes, lead to cowding out
-Level of interest rates may affect AD anf fiscal policy’s effects
-Debt

Question 5

What is current Government expenditure

Answer 5

Spending which recurs, last for a short period of time e.g health service

Question 6

What is capital government expenditure

Answer 6

Spent on assets, used multiple times e.g roads/school

Question 7

What are transfer payments

Answer 7

Welfare payments from the Government to provide minimum standard of living + redistribute income

Question 8

What are supply side policies

Answer 8

actions taken by the Gov increase productive potential (quality and quantity) of the economy (LRAS). e.g youth apprentice shemes.
Can directly target labour market compared to monetary and fiscal.

Question 9

What are supply side improvements

Answer 9

Increase in productive capacity resulting from businesses acting out of their own self interest

Question 10

What is the crowding out effect

Answer 10

Gov increases taxes to receive more income - fewer funds left in the private secotr

Question 11

What is a budget deficit

Answer 11

Expenditure exceeds taxation revenue

Question 12

What is a budget surplus

Answer 12

Taxation revenue/receipts exceeds gov spending

Question 13

What are direct taxes

Answer 13

Taxes imposed on income, paid directly to the Gov

Question 14

What are indirect taxes

Answer 14

Imposed on expenditure on goods and services causing increased COP.
e.g Ad valorem (e.g VAT 20% of unit price) +

Question 15

What are austerity measures

Answer 15

Measures taken aimed at reducing the size of the national debt

Question 16

Cyclical deficit

Answer 16

Temporary deficit related to business cycle. When Gov increases spending to stimulate ecconomy/ boost AD.

Question 17

Structural deficit

Answer 17

Imbalance in revenue and expenditure of the Gov, so exists at every point in the business cycle.

Question 18

What is the role of the Office for Budget Responsibility

Answer 18

Provides analysis of the UK’s finances
produce 5 year forecasts for the economy including impact of tax and GS + budget

Question 19

What is the current account

Answer 19

Exports - imports = current account
International economic transactions

Question 20

What are market-based policies

Answer 20

Focus on the power of the free market, role of gov is reduced e.g. Privatisation (protect domestic industries from foreign competition), deregulation, reduce welfare benefits

Question 21

What are interventionist policies

Answer 21

Involve Gov intervention in markets to achieve a goal e.g Gov spending on education, housing supply decrease geo immob

Question 22

What is malignant deflation

Answer 22

Deflation due to a decrease in AD

Question 23

What is Benign deflation

Answer 23

Deflation due to an increase in (SR)AS

Question 24

What is deeregulation

Answer 24

Process of removing governmtn regulation from a market. Type of free-market policy

Question 25

What is the budget balance

Answer 25

Difference between Gov revenues and spending