Brainscape's Knowledge GenomeTM

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


See full index

Macroeconomics > policies > Flashcards

policies Flashcards

1
Q

what is fiscal policy

A

government expenditure and taxation

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

what is monetary policy

A

central bank decisions on the rate of interest, money supply and exchange rate

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

what is supply side policy

A

policy designed to increase AS by improving efficiency of labor and product markets

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

what are the 3 components to the government budget

A

expenditure, receipts and borrowing requirement

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

what is capital expenditure

A

improving the capital stock of the country

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

what is current expenditure

A

running public services day to day

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

what are transfer payments

A

benefits

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

what is progressive tax

A

larger percentage pf income from high income groups

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

what is proportional tax

A

same percentage of income from all income groups

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

what is regressive tax

A

tax that takes a larger percentage of income from low income groups

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

what is direct tax

A

levied on the income or profits of the person who pays it

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

what is indirect tax

A

levied on goods and services

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

what is a budget deficit

A

government spends more that it receives (expansionary)

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

what is budget surplus

A

government spends less that it receives (deflationary)

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

what is a balanced budget

A

spends the same as it receives

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

why do government operate budget deficits

A

cyclical - needs to respond to economic cycle (recession). structural - deficit when the economy is at full employment or strong

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is a cyclical deficit and why run one

A

in times of recession government run a budget deficit because tax revenue is far lower, reasons for spending is higher

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what are automatic fiscal stabilizers

A

in a recession tax revenue falling but increased government spending on benefits will help stabilize the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what is the difference between debt and a deficit

A

deficit is current and a debt is constant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what is the national debt

A

money the government owes, made up of all the money the government has borrowed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what are the consequences of debt

A

has to be repaid by the next generation,

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what can the government do if the debt gets too big

A

increase tax, austerity (cut back on public spending), boost economic growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is discretionary fiscal policy

A

deliberate attempts to affect AD by changing government spending/borrowing and tax. Expansionary to grow the economy. Deflationary to slow down the economy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

how do you get expansionary fiscal policy and what are the problems with it

A

raise levels of G e.g. increase capital spending to generate long term growth. May require an increase in taxes which could be deflationary. However it adds to national debt, has a a time lag, may lead to ‘crowding effect’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

how do the government finance increased spending

A

borrow from the private sector. they sell bonds, gilts and other securities to them and the private sector lend their money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

what can increased government spending do

A

put upward pressure on interest rates to attract enough savers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are the EU rules for government debt

A

must not be more than 60% of GDP, deficit must not be more than 3%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

what are the reasons for fiscal rules

A

put pressure on government to stick to fiscal responsibilities, increase confidence, single currency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

what are the problems with fiscal rules

A

adopt strict austerity measures, lack of alternative policies, lack of flexibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

what do the central bank make decisions on

A

rate of interest, money supply, quantitative easing, inflation rate targets and exchange rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What does an increase in interest rates cause

A

deflationary money policy - reduced, I,C, X, M

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

what constitutes money?

A

3% notes/coins, 18% reserves and 79% bank deposits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

what are bank deposits

A

banks create around 80% of money in the economy as electronic deposits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

what can increase in money supply do to AD

A

shifts right (more investment etc as more money circulating)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

what is quantative easing

A

increasing the money supply by the central bank electronically creating money. This money is then used to buy government bonds.

36
Q

QE flow diagram

A

central bank creates money - people buy bonds - reduces interest rates - people and businesses borrow more - spend more and create more jobs - boosts the economy

37
Q

what is an exchange rate

A

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

38
Q

what does SPICED stand for

A

strong pound imports cheap exports dear

39
Q

what can a strong pound do to inflation

A

keep it low

40
Q

relationship between interest rates and strength of pound

A

if interest rates increase so does the strength of the pound

41
Q

what can help cause a strong pound

A

keeping the economy stable

42
Q

What is hot money

A

businesses and investors moving money around the world . Goes to the country with the best return. The UK raising interest rates causes speculators to get more in return. They move their money to £ increasing demand and raising price.

43
Q

how important is the exchange rate to the UK

A

not widely used in UK. In China it is constantly manipulated to keep the value of their money low

44
Q

How does the bank of England influence the amount of money banks create

A

regulate the banks (setting a strict minimum level) and by manipulating the interest rates.

45
Q

What and why is this the target rate of inflation

A

2% because it is regarded as stable and economic growth is targeted at 2%. Low so UK can remain competitive so x can increase shifting AD right.

46
Q

explain how interest rates effect AD.

A

Low interest rates cause people to borrow more. Businesses/individuals take out more loans to buy things, increasing consumption and investment. pay less back on existing loans so they have lower costs and higher profit margins. Could use the extra money to expand creating more jobs, more people are earning and spending increases consumption. More loans more money supply.

47
Q

what is the liquidity trap

A

when monetary policy becomes ineffective because people want to hold cash rather than spend or buy liquid assets.

48
Q

examples of supply side policy

A

privatization, deregulation, subsidies, competition policy, investment, reforms of tax/benefit system, immigration control and improved labour market flexibility

49
Q

What can shift AS to the right

A

government has increased the capacity of the economy or the resources that they currently have are being used more efficiently

50
Q

what is the advantage and disadvantage to supply side policies

A

does not increase price level. Ineffective if economy is in a recession/high unemployment/ high negative output gap.

51
Q

what are free market policies

A

increase competitiveness and competition

52
Q

what are interventionist policies

A

government intervention to overcome market failure e.g. increasing educations and training, improving transport and infrastructure, build more affordable homes, improved healthcare

53
Q

what is privatization

A

selling state owned assets to the private sector

54
Q

what is deregulation

A

reducing the amount of regulations facing businesses, reducing their costs and make them more flexible and efficient.

55
Q

What does reducing income tax do

A

Increase incentives for people to work harder

56
Q

What does deregulating labour markets do

A

Make it easier to hire and fire workers

57
Q

What does reducing the power of trade unions do

A

Reduces ability of trade unions to go on strike

58
Q

What does reducing unemployed benefits do

A

Encourage the unemployed to take jobs

59
Q

What is collusive behaviour

A

When firms enter into agreements to fix prices and or output it is illegal

60
Q

what are the 4 types of supply-side policy

A

deregulation, privatization, subsidies and training

61
Q

What is austerity

A

increases in taxes or cutting government expenditure in order to reduce a budget deficit

62
Q

How can a government reduce a budget deficit

A

increase taxes, reduce government expenditure, increase economic growth

63
Q

Why is austerity needed

A
  1. Demand pull inflation may be occurring

2. National debt may be rising to dangerous levels

64
Q

When is fiscal policy sucessful

A
  1. Economy is at low levels of AD
  2. Fiscal multiplier is relatively high
  3. There is crowding in effect (G increases AD, real GDP increases causing accelerator)
65
Q

What is the fiscal multiplier

A

Ratio of a change in national income arising from a change in government spending

66
Q

What is crowding out

A

Increased government involvement in a sector leads to a transfer of scarce productive resources from the private sector to the public sector where productivity may be lower.

67
Q

What is automatic fiscal policy

A

Is dictated by automatic fiscal stabalisers, this left to its own devices fiscal policy will determine itself

68
Q

Why might fiscal policy be unsuccessful

A
  1. Economy being close or at Yfe
  2. Big crowding effect (public sector borrowing squeezes out private sector borrowing - leads to higher interest rates)
  3. Low fiscal multiplier (may be due to high MPW)
69
Q

What is the laffer curve

A

Shows relationship between tax rate and tax revenue

70
Q

Why do the government set inflation targets

A

influences expectations of inflation . Therefore households/businesses can plan for that level of inflation , helping to ensure it happens (use phillips curve to show this)

71
Q

How can the central bank improve competitiveness of UK firms

A

reduce interest rate, lowering exchange rate meaning cheaper exports (AD right)

72
Q

What is competition policy

A

Improves enterprise. Exists to provide a level playing field for businesses, preventing things like predatory pricing, price fixing, cartels and growth of anti competitive monopolies through mergers and takeovers

73
Q

Investment as a supply side policy

A

government capital expenditure which targets improving the structure of the UK economy with ambition of shifting LRAS right e.g. infrastructure projects, investment in training, education and apprenticeships. Offers support to companies to engage in R&D.

74
Q

Reforms of the tax and benefit system as supply side policy

A

Improving quantity and quality of labour but also capital and enterprise. Incentivizes work by making taxes straightforward and benefits less attractive. More benefits being strictly means tested

75
Q

Improved labour market flexibility as a supply side policy

A

workers re in a weaker position compared to employers. Done this by changing trade union laws so they have less power making certain types of industrial action illegal. Caused average wages to have fallen but benefited companies allowing bigger profits to be made.

76
Q

Immigration control as a supply side policy

A

Quantity of labour is reduced. Can encourage businesses to invest in quality of labour, encouraging British workers into work, increasing wage level and overall standard of living.

77
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - duration

A

1.How long will the budget deficit (longer - worse)

2/3. Time-lag (can take a while to act/How long till it improves)

78
Q

Evaluating the effectiveness of 1)fiscal 2)supply-side policies - opportunity cost

A
  1. National debt (we are paying back £88bn that could be spent on education)
  2. Of subsidies (what else can the money be spent on)
79
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - type

A
  1. Capital v current expenditure. Progressive v proportional tax
  2. Lower interest rates or QE (QE benefits wealthier people more)
  3. Privatisation v deregulation. Investment v reform impacts
80
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - overseas relativity

A
  1. Our tax rate v other countries
  2. Our interest rate v other countries
  3. Our subsidies/regulations v other countries
81
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - economy’s position

A
  1. Works in a recession
  2. Works in a recession (not as quick)
  3. Work at/near full capacity
82
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - politicians

A
  1. Bias (bribing electorate with promises/incompetence)
  2. Independent of politicians
  3. Prone to bias/incompetence
83
Q

Evaluating the effectiveness of monetary policy -elasticity

A

Marshall lerner condition

84
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - size

A
  1. Size of tax or cuts
  2. Size of inflation rate change
  3. How big are the subsidies
85
Q

Evaluating the effectiveness of 1)fiscal 2)monetary 3)supply-side policies - unforeseen circumstances

A

pandemic, Ukraine, Brexit

Macroeconomics (8 decks)

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