Policies Flashcards
What is the monetary policy?
Involves changes in interest rates, the supply of money and credit and exchange rates to influence the economy
What is the savings ratio?
Percentage of our income that we save
Expansionary monetary policy bullet points?
- to stimulate aggregate demand
- fall in nominal and real interest rates
- measures to expand supply of credit
- depreciation in exchange rates
Contractory monetary policy bullet points?
- decrease aggregate demand
- higher interest rates on loans and savings
- tightening of credit supply
- appreciation of the exchange rate
What is the LRAS curve?
Shows the productive capacity of the economy
What are the two types of fiscal policy?
- Expansionary fiscal policy (increase AD)
- Contractionary fiscal policy (decrease AD)
What is fiscal policy?
The use of government spending and taxation to influence the pattern of the economic activity and affect the level of growth of aggregate demand, output and employment
What is council tax
tax people in a council payed directly to the council - based on the value of your house
Why do we have taxes (fiscal policy)? 5
- influence aggregate demand more easily
- redistribute income and wealth
- influence spending patterns
- raise money to finance public services
- to protect jobs in this country
What are the ways to finance a deficit?
- issue bonds to hot money sources
- sell govt owned assets
- surpluses from previous years
What are indirect taxes?
Taxes on spending
- VAT
- tariffs on imports
- petrol duty
What are direct taxes?
Taxes on income
- income tax
- corporation tax
- inheritance tax
- national insurance
What are the types of tax?
- progressive
- regressive
- proportional
What is a progressive tax?
% rate of tax rises as income rises
What is a regressive tax?
% rate of tax falls as income rises
What is a proportional tax?
% rate of tax is constant
What is a trade off?
where one macro objective may be achieved at the expense of another objective
What are Adam smiths canons of taxation?
- equitable
- certainty
- convenient
- economic
- flexible
- efficient
What are the two ways govt spending can be divided?
- current spending
- capital spending
What is current spending?
day to day running of the public sector including raw materials and wages of public sector workers
What is capital spending?
used to improve the productive capacity of the nation including infrastructure, schools and hospitals
What is the multiplier effect?
a change in one of the components of ad can lead to a multiplied final change in the equilibrium of gdp
what is the multiplier effect formula?
K(multiplier) = 1/MPC
What is the accelerator effect?
The difference between planned capital investment and the rate of change of national income
What are the three sections of the balance of payments?
- the current account
- the financial account
- the capital account
What is the current account?
- trade in goods
- trade in services
- net primary income
- net secondary income
What is the financial account?
- transactions in financial assets
- investment flows
- government transactions
What is the capital account?
- transfer of assets by individuals
What is an improvement in the BoP?
Reduction in a deficit, increase in a surplus, deficit becomes a surplus
What is a deterioration in the BoP?
Increase in a deficit, reduction in surplus, surplus becomes deficit
What is productive capacity?
The amount of goods and services that the economy is capable of producing. When this productive capacity increases me call it long run growth.
