TOPIC 2

Question 1

list the 4 macroeconomic objectives:

Answer 1

1. price stability
2. low unemployment
3. stable economic growth
4. balance of payments equilibrium

Question 2

what is disinflation?

Answer 2

a fall in the rate of inflation, prices are still rising but less quickly than they were.

Question 3

what is deflation?

Answer 3

a general fall in the price of goods and services.

Question 4

what is involved in price stability as one of the key macroeconomic objectives?

Answer 4

a low and controlled rate of inflation. moderate inflation can stimulate investments which is good for the economy.

Question 5

what is involved in low unemployment as one of the key macroeconomic objectives?

Answer 5

involves expanding the economy so that there is more demand for labour, land and capital.

Question 6

what is balance of payments equilibrium as one of the key macroeconomic objectives?

Answer 6

where expenditure on imports of goods and services and investment income going abroad is equal to the income received from exports of goods and services and the return on overseas investments. the governments aims to keep the price of currency stable at a level that is not so high that exports will be discouraged but not so low to increase inflation.

Question 7

what is involved in satisfactory economic growth as one of the key macroeconomic objectives?

Answer 7

the output of the economy is growing in real terms overtime and the standard of living are getting higher.

Question 8

what is a recession?

Answer 8

a significant decline in economic activity over a sustained period. technically it’s 2 consecutive quarters of negative economic growth as measured by a country GDP.

Question 9

what does GDP mean and what is it?

Answer 9

Gross domestic product - a measurement of a country’s overall economic activity.

Question 10

list the 4 phases the economy goes through:

Answer 10

1. recovery and expansion
2. boom
3. contraction or slow down
4. recession

Question 11

what is the phase of the recovery and expansion in the economy cycle?

Answer 11

interest rates, inflation and unemployment are low. consumers have money to spend, demands for goods and services rises, pushing prices up. share prices improves as businesses flourish.

Question 12

what is the phase of the boom in the economy cycle?

Answer 12

to prevent the economy from overheating, the bank of England may intervene by putting up interest rates to control consumer spending and dampen inflation.

Question 13

what is the phase of contraction or slowdown in the economy cycle?

Answer 13

once the interest rates rises start to bite, consumer spending falls. demands for goods and services fall as do share prices and unemployment rises. inflation slow downs

Question 14

A measure of the change in price of a ‘basket’ of consumer goods and services of a period is known as what?

Answer 14

consumer prices index

Question 15

Measures taken to control the supply of money in the economy in order to manage inflation with interest rates is know as what?

Answer 15

Monetary Policy

Question 16

The rate at which the Bank of England lends to other financial institutions is known as what?

Answer 16

the Bank Rate

Question 17

who sets out the Interest rates?

Answer 17

the Bank of England’s Monetary Policy Committee (MPC)

Question 18

influencing the money supply and the overall level of the economic activity by manipulating the finances of the public sector is called what?

Answer 18

The Fiscal Policy

Question 19

give 4 examples of direct tax:

Answer 19

1. income tax
2. capital gains tax
3. inheritance tax
4. national insurance

Question 20

give 2 examples of indirect tax:

Answer 20

1. VAT

2. Stamp duty

Question 21

what is meant by a balanced budget?

Answer 21

the effect on the economy is neutral - amount taken in tax is put back into the public spending

Question 22

what is meant by a budget surplus?

Answer 22

The amount taken in taxation is greater than the amount put back into public spending. the economy contracts

Question 23

what is meant by a budget deficit?

Answer 23

public spending is greater than the amount taken in taxation - the economy expands.

Question 24

what is the fiscal policy?

Answer 24

the adjustment of levels of taxation and public spending in a way that is intended to achieve the governments macroeconomic objective.

Question 25

list 4 steps that happens after an increase in taxation regarding inflation:

Answer 25

1. less disposable income
2. less spending
3. less demand for goods and services
4. inflation falls

Question 26

list 4 steps that happens after an reduction in taxation regarding inflation:

Answer 26

1. more disposable income
2. more spending
3. high demand for goods and services
4. inflation rises

Question 27

what has a general application, and are binding in their entirety, both in respect of what is it to be achieved and how it is to be achieved?

Answer 27

REGULATIONS

Question 28

what is binding upon each member state to which they are addressed as to the result to be achieved and has the freedom of discretion on how they are to achieve a end result?

Answer 28

DIRECTIVES

Question 29

what does ESA’s stand for?

Answer 29

European supervisory Authorities

Question 30

who are included in the European supervisory authorities?

Answer 30

1. The European Securities and Market Agency (ESMA)
2. The European Banking Authority (EBA)
3. The European Insurance and Occupational Pensions Authority (EIOPA)

Question 31

who has significant power to propose a new rule and make decisions that are binding upon national supervisors such as the FCA and other firms?

Answer 31

The European Supervisory Authorities (ESA)

Question 32

who has direct supervisory responsibility for credit referencing agencies?

Answer 32

The European securities and Markets Agency (ESMA)

Question 33

what are the five tiers of regulatory oversight in the UK?

Answer 33

1. European legislation (regulations and directives that impact the financial services industry)
2. Acts of Parliament (eg financial services and markets act 2009)
3. Regulatory bodies (monitoring regulations and issuing rules and requirements)
4. Policies and practice of the financial institutions (the own banks procedures)
5. Arbitration schemes (financial ombudsman)