Brainscape's Knowledge GenomeTM

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


See full index

macroeconomics > Pack 4: Macroeconomic policy and conflict > Flashcards

Pack 4: Macroeconomic policy and conflict Flashcards

1
Q

What is fiscal policy?

A

Use of government spending and taxation to influence level of AD

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

What is direct tax?

A

Levy targeted at one person on basis of income

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

What is indirect tax?

A

Levy imposed on the consumption of a good or service

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

What is a budget/fiscal deficit?

A

Government spends more than it receives in tax revenue in given year

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

What is budget/fiscal surplus?

A

Government spends more than it receives in tax revenue in a given year

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

When is the budget expansionary?

A

When the deficit increases or the surplus decreases, injection into circular flow/smaller withdrawal

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

When is the budget contractionary?

A

Deficit decreases or surplus increases, smaller net injection or larger net withdrawal to circular flow

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

What are the issues with running a budget deficit and increasing national debt?

A

~Tax rises in future
~Opportunity cost
~Crowding out
~Impact on credit rating
~No one wants to lend

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

What is monetary policy?

A

Use of monetary instruments, such as interest rates and money supply to influence AD

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

What is expansionary monetary policy?

A

Down interest rates and QE

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

What is contractionary monetary policy?

A

Increasing interest rates, reducing money supply

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

Who controls interest rates?

A

Monetary Policy Committee (MPC) of the Bank of England to ensure that best decisions made for the economy without political interference

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

What demand side factors effect inflation?

A

~Consumption prospects
~Investment prospects
~Government spending changes
~Net export prospects

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

What are interest rates?

A

Cost of borrowing and reward for saving

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

What supply-side factors effect inflation?

A

~Exchange rates
~Commodity prices
~Changes in indirect taxation
~Firm’s wages and costs
~Productivity changes

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

What is QE?

A

Process by which liquidity in the economy is increased when the central bank purchases assets from banks

17
Q

How does QE boost AD?

A

~Up money supply for banks, up lending/investment
~Down government bond yield, less ROI:
+Up prices of shares and properties as people investing in them more
+Positive wealth effect
+Demand for £ down as less investment into government bonds, reduces exchange rate boosts net exports

18
Q

What are the side effects of monetary policy?

A

~Higher interest rates can increase income inequality
~Higher interest rates can reduce competitiveness
~QE can cause asset bubbles
~Up interest rates can lead to lower business investment (conflict)

19
Q

What was the main example of expansionary fiscal policy during Great Depression in the US?

A

Roosevelts New Deal

20
Q

What caused the depression to last longer in the US?

A

Contractionary monetary policy of high interest rates

21
Q

What helped economic recovery in the UK

A

Expansionary monetary policy of cutting interest rates

22
Q

What made the depression worse in the UK?

A

Contractionary fiscal policy of trying to balance the budget

23
Q

What measures did both countries use which made the depression worse?

A

Protectionist measures

24
Q

What did both countries do during the Financial Crisis of 2008?

A

Expansionary fiscal and monetary policy and little protectionism until Trump and Brexit

25
Q

What are supply-side policies?

A

Policies undertaken by government to increase productive potential of economy and LRAS

26
Q

What are interventionist supply-side policies?

A

Government directly intervening to boost LRAS

27
Q

What are Market based supply-side policies?

A

Policies allowing markets to work more freely and providing incentives to boost LRAS

28
Q

What are the key supply-side policies which can be used? (all can be both interventionist or market based, see pack)

A

~Increasing incentives
~Promoting competition
~Improving infrastructure
~Improving skills/quality of labour force
~reform of labour market

29
Q

What are the strengths of supply side policies?

A

~Meeting Macro objectives simultaneously
~Long-term macroeconomic management
~Less reliance on short-term economic data

30
Q

What are the weaknesses of supply-side policies?

A

~Policies not always effective (LRAS not boosted)
~Significant time lags
~Magnitude of effects
~Side effects
~AD still needs to be managed carefully

31
Q

What is shown by the short-run Phillips Curve?

A

Shows the inverse relationship between inflation and unemployment which only holds in the short-term

32
Q

Why are policy conflicts and trade-offs important?

A

All macro objectives cannot be met at once as there is conflict between polices. This means government needs to prioritise the objectives most important to them

macroeconomics (7 decks)

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