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Mr C Economics > Policies > Flashcards

Policies Flashcards

1
Q

What do the policies do

A

CONTROL AS / AD

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2
Q

what are the 3 policies

A

monetary, fiscal and supply

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3
Q

who controls monetary policy

A

bank of england (independent from gov)

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4
Q

what is the monetary policy

A

when the bank of england changes the interest rates in order to control the amount of AD in the economy

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5
Q

what does expansionary monetary policy do?

A

lower interest rates = increase AD

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6
Q

higher interest rates = slow down AD (what is this called and why do they do it)

A

contractionary monetary policy = slow down demand-pull inflation

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7
Q

what happens when you lower the interest rates? (6)

A
  1. Discourage saving (as you get less when you save) = encourage consumption
  2. Encourage consumption (credit cards + loans + mortgages = charge less = more disposable income)
  3. Encourage investment (more borrowing)
  4. Encourage borrowing (loans charge less)
  5. Increase consumer / businesses confidence (loans charge less)
    Increase strength of pound (HOT MONEY: rich people put money in banks that charge the most interest rates b/c they save more when saving aka if interest rate goes up, more money flows into UK accounts from abroad = demand for pound goes up = value of pound goes up) BUT = increase imports and decrease exports b/c exchange rate is stronger + UK has a high propensity to import (likes to buy foreign goods)
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8
Q

what does fiscal policy affect

A

AD = C + I + G + (X-M)

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9
Q

what is expansionary fiscal policy

A

where government spending is increased relative to taxation or a budget surplus is reduced and thus leads to an increase in aggregate demand

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10
Q

what is deflationary fiscal policy

A

where the budget deficit falls or surplus rises thus leading to a fall in aggregate demand and economic growth but also falling inflationary pressures

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11
Q

spending up / taxing down (what and what for)

A

expansionary fiscal policy = increase AD

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12
Q

what is contractionary fiscal policy (what and what for)

A

spending down / taxing up = decrease AD = lower demand pull inflation

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13
Q

what do they do fiscal policy (4)

A
  1. raise revenue and finance gov spending
  2. manage aggregate demand
  3. change distribution of income and wealth (stop income inequality)
  4. market failure and environmental targets
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14
Q

how does fiscal policy affect economic growth

A

help: = more money flowing around economy = encourage consumption + investment = increase in GDP = economic growth

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15
Q

how does fiscal policy affect low unemployment

A

help: = businesses have more money = able to hire more people = lower unemployment
hinder: = more benefits = discourage people who are on jobseekers allowance to find a job

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16
Q

how does fiscal policy affect low and stable inflation

A

help: = economic growth = increase value of pound = exchange rate favours Britain = reduce cost push inflaiton
hinder: consumers have more disposable income = more consumption + have a large average propensity to import = increase AD for imports = demand pull inflation

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17
Q

how does fiscal policy affect balance of payments

A

hinder: = increase AD for imports + high API = imports > exports = bigger trade deficit
BUT will also increase AD for exports

18
Q

how does fiscal policy affect balanced government budget

A

help: = more economic activity = more tax = more tax revenue = reduce budget deficit
hinder: duh!

19
Q

how does fiscal policy affect protection of environment

A

help: = gov spending = may use money to refer damages to environment + protect it
hinder: = more GDP = more pollution

20
Q

how does fiscal policy affect greater income equality

A

help: more benefits = greater income equality
hinder: less income tax = increase income equality (depends on who you are taxing)

21
Q

who controls fiscal and supply side policies

A

government

22
Q

what is supply side policies

A

gov policies which create incentives for individuals and firms to increase their productivity

23
Q

what will supply side policies achieve

A

improve capacity of economy to produce and shift the LRAS curve to right = supply grows with demand = economy can grow without demand pull inflaiton

24
Q

what do the supply side policies for product markets do

A

increase competition = increase effeciency

25
Q

what are supply side policies for product markets (5)

A
  1. privatisation
  2. commitment to free trade
  3. encourage corporate investment
  4. more subsidies
  5. reduce corporation tax
26
Q

what does privatisation do

A

product changes from being provisioned by the gov to being provided by private companies (gov not providing a service anymore)

27
Q

how does privatisation increase supply

A

aim of companies is to maximise profit = more competition more incentive to provide = increase AS / = better quality + more competitive prices + expanding = more accessible

28
Q

what does commitment to free trade do

A

allow any country to import without tax

29
Q

how does commitment to free trade increase supply

A

b/c high API - encourage exports = increase AS

+ encourage imports = more competition

30
Q

how does reduce corporation tax increase AS

A

tax breaks = small businesses pay les tax than bigger ones = more AS

31
Q

disadvantages to privatisation (2)

A
  1. profit - maximising company = may limit people to access that good
  2. aim to make money = not care of quality of product / welfare of consumers
32
Q

what are the supply side policies for labour markets designed to do

A

increase quality and quantity of labour supply

33
Q

what are the supply side policies for labour markets (6)

A
  1. trade union reforms
  2. increase spending on education and training (increase human investment)
  3. lower income tax
  4. reform benefit system
  5. improve movement of labour
  6. increase minimum wage
34
Q

what is a trade union

A

an organisation made up of workers within the same industry

35
Q

how does trade union reforms increase AS

A

trade unions = production costs
so
less power to trade unions = decrease production costs

36
Q

how does human investment increase AS

A

human investment = greater supply + quality of workers = more productive + efficient

37
Q

how does lower income tax increase AS

A

higher incentive to work + not use benefits (not be unemployed)

38
Q

how does a reform of the benefit system increase AS

A

more difficult to get benefits / cut benefits = higher incentive to work

39
Q

eva of trade union

A

increase chances of workers paid low wages and being taken advantage of

40
Q

eva of human investment

A

very long term

41
Q

eva of income tax

A

low gov budget = can’t reduce deficit / greater deficit

42
Q

eva of benefits

A

negative effect on the most disadvantaged people in the economy + increase income equality

Mr C Economics (15 decks)

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