Policies Macro

Question 1

What are automatic stabilisers?

Add example in recession

Answer 1

Some of the fiscal policy may automatically react to changes in economic cycle. E.g during a recession gov spending will increase as the gov Pays more on unemployment benefits.

Question 2

What is a structural budget position

Answer 2

Long term fiscal stance

Question 3

What is a cyclical budget position

Answer 3

Short term fiscal stance, affected by the place in economic cycle

Question 4

What is horizontal equity

Answer 4

This will mean that people who have similar incomes and ability to pay taxes should pay the same amount of tax

Question 5

What is vertical equity

Answer 5

This will mean that people who have higher incomes and greater ability to pay taxes should pay more.

Question 6

What is progressive tax and how does it help the economy

Answer 6

This tax increases as an individuals taxes rise as their income rises. It’s often used to redistribute Income and reduce inequality

Question 7

What is regressive taxes and why is it used?

Answer 7

This is where an individual taxes fall as their income rises this is used to encourage supply side growth. By reducing the taxes of the rich the Gov hopes the economy will benefit from the trickle-down effect. It gives the incentive to work harder but it may increase inequality

Question 8

Where can the government borrow money from?

Answer 8

• borrow money from uk banks
• borrow money from private sector by selling treasury bills
• borrow from financial markets

Question 9

What could excessive borrowing cause?

Answer 9

It can cause demand pull inflation as the gov borrowing increases the money supply. This can cause a rise in interest rates to curb the inflation. This discouraged investment and make a currency rise in value.

Question 10

Problems with budget surplus

Answer 10

• it might suggest that taxes are too high or that Governments aren’t spending enough on the economy- these can constrain economic growth

Question 11

When we’re the fiscal rules first bought into place in the uk

Answer 11

1997

Question 12

What did the office for budget responsibility introduced in 2010 do?

Answer 12

• publishes report analysing uk public spending
• assess performance against the fiscal targets
• use long term projections to help keep it under control

Question 13

How long have the Bank of England used forward guidance for

Answer 13

Since 2013 to help people plan spending

Question 14

What is funding for lending and when was it introduced

Answer 14

Introduced in 2012 to make cheaper loans available, however was then closed when the housing market had recovered

Question 15

When was QE introduced in the uk and why?

Answer 15

2009 when ad needed to be stimulated but interest rates were already low (0.5%)