The economic environment

Question 1

What is macroeconomic policy?

Answer 1

The way in which the government will manage the economy as a whole

Question 2

What are the main objectives of macroeconomic policy?

Answer 2

Achieving a certain level of economic growth
Keeping inflation below a certain level
Maintaining high levels of employment
Redistribution of wealth and income

Question 3

What is aggregate demand?

Answer 3

The total demand for goods and services in the economy

Question 4

Low aggregate demand can lead to…

Answer 4

unemployment

Question 5

High aggregate demand can lead to…

Answer 5

a rise in inflation

Question 6

Using interest rates to control the supply of money is…

Answer 6

Monetary policy?

Question 7

A rise in interest rates will reduce the amount of money will have to spend and therefore reduce

Answer 7

aggregate demand

Question 8

A reduction in interest rates will increase the amount of money people have to spend and therefore…

Answer 8

increases aggregate demand.

Question 9

What is fiscal policy?

Answer 9

Using the relationship between taxation, gov spending and borrowing to control demand in the economy.

Question 10

A reduction in taxation and an increase in gov spending will mean that government borrowing will need to……in order to increase aggregate demand.

Answer 10

increase.

Question 11

An increase in taxation and a reduction in government spending will mean that gov borrowing will…….which will …… aggregate demand

Answer 11

reduce x2

Question 12

Inflation is caused by…

Answer 12

Demand pull

Cost push

Question 13

If there is a big fiscal deficit (less taxation, more gov spending) then this may lead to inflation. What might by the concern of employers?

Answer 13

The cost of raw materials may rise and therefore they will be under pressure to increase wages.

Question 14

If a government increases taxation in order to raise more money, what is the concern of the business owner?

Answer 14

Corporation tax may increase, in addition to income tax and national insurance contribution - this might affect the number of employees we take on.

Question 15

Give 4 ways in which a government can intervene in the regulation of a business.

Answer 15

1. Competition policy (preventing anti competitive agreements)
2. Green Policies (externalities, fines)
3. Government assistance (grants)
4. Corporate governance - (regulatory framework)