Theme 2 - Objectives and policies

Question 1

Automatic stabilisers

Answer 1

Effects by which government expenditure adjusts to offset the effects of recession and boom without the need for active intervention.

Question 2

Bank rate

Answer 2

The interest rate that is set by the monetary policy committee of the Bank of England in order to influence inflation.

Question 3

Fiscal policy

Answer 3

Divisions made by the government on expenditure, taxation and borrowing.

Question 4

Flat rate tax system

Answer 4

A system of income tax where each tax payer pays the same rate of tax on income

Question 5

Government budget (fiscal) deficit

Answer 5

A negative balance of government expenditure minus revenue

Question 6

Government budget (fiscal) surplus

Answer 6

A positive balance of government expenditure minus revenue

Question 7

Inflation targeting

Answer 7

An approach to macroeconomic policy whereby a central bank is tasked with meeting a target for inflation

Question 8

Keynesian school

Answer 8

A group of economists who believe that the macro economy could settle at an equilibrium that was below full employment

Question 9

Monetarist school

Answer 9

A group of economists who believe that the macro economy always adjusts rapidly to the full employment level of output

Question 10

Monetary policy

Answer 10

The decisions made by a central bank e.g. the central Bank of England, regarding monetary variables such as the money supply and the interest rate

Question 11

Net investment

Answer 11

Gross investment minus depreciation

Question 12

Quantitative easing

Answer 12

A process by which the central bank purchases assets such as government and corporate bonds in order to release additional money into the fiscal system

Question 13

Supply side policies

Answer 13

A range of measures intended to have a direct impact on aggregate supply- and specifically the potential capacity output of the economy