Topic 2: Economic policy and financial regulation Flashcards
What is meant by a ‘macroeconomic objective’?
An objective that relates to the economy as a whole, rather than to a specific sector or individual company.
What are the four key macroeconomic objectives that UK governments generally seek to achieve?
Price stability, low unemployment, a balance of payments equilibrium and
satisfactory economic growth.
What is a potential negative consequence of expanding economic growth to reduce unemployment?
Measures taken to expand the economy (e.g. reducing interest rates and taxation) increase the demand for goods and services, which is likely to result in a rise in inflation.
All governments aim to achieve zero inflation. True or false?
False. They aim to keep prices stable, but seeking to reduce inflation to zero is likely to increase unemployment.
What is the UK government’s inflation target and how is it measure?
The UK government’s inflation target is 2 per cent with a maximum divergence either side of 1 per cent. It is measured by the Consumer Prices Index.
Disinflation means that:
a) prices are rising faster than previously.
b) prices are falling.
c) prices are rising but more slowly than previously.
d) prices are staying the same.
c) Prices are rising but more slowly than previously.
In June, the Monetary Policy Committee (MPC) decides to raise the Bank rate by half a percentage point. In August, Paul and Amanda’s mortgage payments increase. Explain how these two events are likely to be linked.
Paul and Amanda must have a variable rate mortgage, so the amount they pay each month is likely to rise and fall broadly in line with changes in the Bank rate.
8) Which of the following economic measures taken by a government would not help to achieve a budget surplus?
a) Increasing taxation.
b) Increasing public spending.
c) Reducing public spending.
b) Increasing public spending. To achieve a budget surplus a government must cut public spending, raise taxes, or both.
A new piece of EU legislation is being introduced. It is being implemented at the same time and in exactly the same way across all member states. This indicates that the legislation is in the form of:
a) a directive.
b) a regulation.
b) A regulation. Member states have flexibility in the way they introduce directives.
10) Which EU body is responsible for monitoring the financial system for systemic risk and taking steps to reduce it?
The European Systemic Risk Board (ESRB)
