Topic 2 Flashcards
Macroeconomic
The ‘big picture’, looking at the economy as a whole and setting objectives to effect the whole economy, such as taxation, inflation, national employment, etc.
Microeconomic
Looking at effecting local economies or specific industries by targeted action, such as tax incentives to attract companies to specific regions, or actions to boost certain types of companies.
Inflation
The rise in prices of goods and services over time.
Disinflation
Prices rise over a period, but at a lower rate than before.
Deflation
Prices fall over a period of time.
Gross domestic product (GDP)
A measure of a country’s economic activity, used to show the size and health of the economy. It is calculated as the total market value of all goods and services produced by that country during a specific period.
Recession
A country’s gross domestic product (GDP) falls in two consecutive quarters.
Money supply
A measure of the total amount of money in the economy at a specific time – it includes notes, coins, bank operational balances at the Bank of England and private sector deposit accounts.
Monetary policy
Controlling the supply of money in a country to manage inflation, mainly through interest rates. Less money in the economy will restrict spending to reduce inflation. Increasing the amount of money available will increase spending and inflation.
Fiscal policy
The use of taxation and government borrowing and spending to affect economic activity, and can also influence the money supply, although monetary policy is the main tool for money supply.
A recession is defined as:
two quarters of negative GDP growth.
Which of the following is not a European Supervisory Authority (ESA)?
European Systemic Risk Board
The government takes more in taxation than it spends on public services. This is most likely to result in the economy:
contracting.
Which of the following is an example of an indirect tax?
Fuel duty.
Which of the following best describes EU Directives?
describe the required outcome but leave member states to decide how they are achieved.
In normal circumstances, what is the maximum number of times the Bank of England base rate could change in a 12-month period?
8
Which of the following is not a government macroeconomic objective?
Maximum employment levels.
During the recovery and expansion phase of the economic cycle, share prices are most likely to:
increase.
Allowing for the maximum permitted divergence, the Monetary Policy Committee inflation target is:
1-3 %
The increase in the Consumer Prices Index has fallen from 4% to 2.5% in the past 12 months. This is an example of:
disinflation
KEY MACROECONOMIC OBJECTIVES
- Price stability
- Low unemployment
- Balance of payments equilibrium – a situation in which expenditure on
imports of goods and services and investment income going abroad is
equal to (ie in equilibrium with) the income received from exports of goods
and services and the return on overseas investments. The exchange rate
of the country’s currency is linked to the balance of payments, and most
governments aim to keep the price of currency stable at a level that is
not so high that exports will be discouraged but not so low as to increase
inflation. - Satisfactory economic growth – the output of the economy is growing in
real terms over time and standards of living are getting higher
The four objectives given above tend to fall into two pairs:
–policies to reduce unemployment will also boost growth;
measures to reduce inflation will also help to improve the balance of
payments
Over time, economies typically go through four main phases
–recovery and expansion;
boom;
contraction or slowdown; and
recession
