Straight Chains

Question 1

Interest rates effect through credit

Answer 1

More demand for credit
More consumption
Lower MPS Higher MPC
D outwards shift
P and Q (inelastic or elastic)
Inflation
Movement towards FE

Question 2

Interest rates effect through BoP

Answer 2

Less FDI
HM outflows, capital flight
Decrease D for £
Depreciation
Better trade balance
Dearer M
Movement towards current account surplus

Question 3

Interest rates effect through budgetary position

Answer 3

Base rate increase
CR increase
assumption same mag and dir
balance budget sheets of B

Question 4

Interest rates effect through wage

Answer 4

increased confidence/animal spirits
anticipate inflation
wage up, prices up, cost push
wage price spiral due

Question 5

Interest rates effect through supply

Answer 5

stimulate investment into prod. capital
increased confi
shift in ad and ;ras
therefore growth and emp, p the same
macro objectives

Question 6

Evaluation of IR:

Answer 6

Forward guidance transparency (timing)
magnitude of change (stability)
economy stage
confidence
time lag
passing on - £23bn big 4 banks

Question 7

Ricardian equivalence

Answer 7

cut tax rate in SR
national debt increases as ind. anticipate tax rise going forward
negates effects of EFP

Question 8

interventionist SSP

Answer 8

R+D and training (human capital)
Infrastructure
Subsidies
Healthcare

boost LRAS

Question 9

laffer curve drawbacks

Answer 9

theoretical model
impossible to know where you are

Question 10

laffer curve chain

Answer 10

increase TR till a point
m=o then decrease:
disincentives to work
tax evas/avoid
emigration
higher skilled, make up TR a lot

Question 11

drawbacks of SRPC

Answer 11

does not show LR
monetarists adapted to show LR in LRPC

Question 12

SRPC Chain

Answer 12

conflict between infl. and unemployment
trad AD shift
movement along SRPC
inverse
demand pull infl

Question 13

stagflation

Answer 13

shift in SRPC outwards

Question 14

LRPC point

Answer 14

NARIU AND NRU

Question 15

COVID monetary policy

Answer 15

interest rates 0.75% to 0.1% no effect so QE (495 bn)
growth, decresed U, prevented deflation

Question 16

covid mon lead to

Answer 16

high inflation 11.1%
banks uncertain not willing to lend
constricted growth for a while

Question 17

present day monetary policy

Answer 17

IR 0.1 to 5.25
quantative tightening to decrease inf

Question 18

cons of monetary

Answer 18

bank failure (silicone valley, credit suisse) insolvency
decreased growth and increase U
decreased investment

Question 19

combat economic inactivity

Answer 19

interventionist ssp
lower benefits and consumer taxes

Question 20

decrease NRU

Answer 20

Infra and edu
combat hysteresis

Question 21

regional growth

Answer 21

interventionist
corp tax and subs

Question 22

productivity

Answer 22

labour market reform (min wage relax immigration)
cut corp
interventionist

Question 23

deflation chain

Answer 23

deflation suggests inwards shift in AD
falling confidence
Falling prices, falling GDP
higher savings ratio, MPS up
rev businesses fall
cyclical unemployment
unemployment and growth conflict with obj

Question 24

deflation chain eval

Answer 24

Benign deflation good (supply shift)
deflation could be caused by increase in aggregate supply, perhaps due to infrastructure improvements

Question 25

eval of inflation

Answer 25

Depends on the nature of inflation → if your in a recession increasing inflation builds growth
This could lead increase in AD
higher spending signals to increase output, reduction in unemployment

Question 26

crowding out

Answer 26

government needs to borrow for GS
increased psncr adding to net debt (GS>T amount)
sell bonds to fund x, savings
Outwards D for LF
PS borrow less (highr IR)
Less productive capital -> less growth
classical idea, against GS

Question 27

crowdin out eval

Answer 27

Q LF is not limited, drastic change in IR unlikely
external finance available
Keynesians temp GS increase multiplier effect if the economy is under-utilised (capacity)
Extra T rex and employment