Topic 2

Question 1

What is disinflation?

Answer 1

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

Question 2

What are the 4 key macroeconomic objectives?

Answer 2

-price stability
-balance of payments equilibrium
-low unemployment
-satisfactory economic growth

Question 3

What 2 pairs do the 4 key macroeconomic objectives fall into?

Answer 3

Policies to reduce unemployment with also boost growth
-measures to reduce inflation will also help to improve the balance of payments

Question 4

How do we know if the country is in a recession?

Answer 4

2 consecutive quarters of negative economic growth measured by a country’s GDP

Question 5

What are the 4 main phases economies go through?

Answer 5

-recovery and expansion
-boom
-contraction or slowdown
-recession

Question 6

What is monetary policy?

Answer 6

Measures taken to control the supply of money in the economy

Question 7

What is the current inflation target, and how is it measured?

Answer 7

2% with a 1% maximum divergence either way as measured by CPI

Question 8

What are 2 disadvantages of fixed rate mortgages?

Answer 8

-borrower may lose out if the variable rate falls and they are locked into a higher fixed rate
-there is normally a penalty for paying off the mortgage within the fixed rate

Question 9

What is fiscal policy?

Answer 9

The adjustment of levels of taxation and Public spending in a way that is intended to achieve the government’s macroeconomic objectives.

Question 10

In what two ways can changes in taxation affect the market for financial services and products?

Answer 10

-increased general taxation reduces the amount of money available for investment or to fund loan repayments
-tightening of the taxation regime in relation to particular products or services makes them less attractive to investors

Question 11

What are the 2 most common forms EU laws take?

Answer 11

-regulations
-directives

Question 12

What is an EU regulation?

Answer 12

Have a general application
-are binding in their entirety both in respect of what is to be achieved and how to achieve it
-are directly applicable to all member states

Question 13

What is an EU directive?

Answer 13

Each member state has discretion as to how they will achieve the aim.
The directive must be achieved within a specific timescale (typically 2 years)

Question 14

What compromises the European system of financial supervision

Answer 14

European systemic risk board (ERSB)

European supervisory authorities (ESA’s)

National regulators (eg fca for uk)

Question 15

What are the 3 European supervisory authorities?

Answer 15

-European securities and markets agency (ESMA)
-European banking authority (EBA)
-European insurance and occupational pensions authority (EIOPA)

Question 16

What are the aims of the European supervisory authorities (ESA’s) ?

Answer 16

-creating a single EU rule book
-issuing guidance and recommendations
-investigating national supervisory authorities that are failing to comply
-in a crisis providing EU wide co ordination
-mediating in certain situations where national supervisory authorities disagree
-considering consumer protection issues

Question 17

What is the role of the European systemic risk board (ERSB) ?

Answer 17

-identify and prioritising risks
-issuing warnings and recommendations and monitoring their follow up
-co operating with other members of the ESFS
-co ordinating action with other international financial organisations

Question 18

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

Answer 18

First level - Onshored EU legislation at the time of brexit and other EU legislation
Second level - Acts of Parliament
Third level - regulatory bodies
Fourth level- policies/ practices of the financial institution (banks own procedures)
Fifth level - arbitration schemes (financial ombudsman)