Topic 2: Economic Policy & Financial Regulation Flashcards
What is Inflation?
Increase of goods and services
What is Disinflation?
Prices of goods still increasing but slower
What is Deflation?
- A fall in the price of goods and services
- Below 0%
A objective that relates to the economy as a whole
Macroeconomic Objective
What are the 4 key microeconomic objectives?
- Price Stability
- Low unemployment
- Balance of payments equilibrium
- Satisfactory economic growth
What type of macroeconomic objective is classed as ?
“Low and controlled rate of inflation”
Price Stability
What type of macroeconomic objective is classed as ?
“Demand for increase of labour, land & capital
Low unemployment
What type of macroeconomic objective is classed as ?
Balancing of imports and exports that is linked to exchange rates
Balance of payments equilibrium
What type of macroeconomic objective is classed as ?
Growing economy and increase in living standards
Satisfactory economic growth
Which macroeconomic objectives are linked to each other?
- Low unemployment & satisfaction economic growth
- Price Stability & Balance of payments equilibrium
What is an overall measurement of a countries economy activity over a period of time?
GDP (Gross Domestic Product)
What 4 stages do economies go through?
- Recovery and Expansion
- Boom
- Contraction/Slowdown
- Recession
CPU (Consumer Price Index) aims to keep inflation at what percentage?
1- 3%
Divergence either side of 1%
How does the monetary policy aim to control inflation?
By manipulation of interest rates to control the amount of money in the economy
Why do banks and financial institutions alter interest rates in line with the BOE?
To cover cost and make profit
How does interest charges affect tracker mortgage holders?
Increases may mean the borrow cannot afford the mortgage
What is Fiscal Policy?
Use of taxes and public spending to manage the economy
(macroeconomic objectives)
What type of budget is defined as?
- Taxation and public sector are equal
- Tax invested in public sector
Balanced Budget
What type of budget is defined as?
- Taxation is greater than public spending
- Economy contracts
Budget Surplus
What type of budget is defined as?
- Public Spending is greater than taxation
- Economy Expands
Budget Deficit
Public Service Net Cash Requirement (PSNCR) is used when?
- Public Sector has deficit
- Must borrow to cover deficit
What are Indirect Taxes?
Tax applied to goods and services
What are Direct Taxes?
Taxes applied to Individuals and their assests
Taxation increases lead to what?
Fall in inflation
Decrease in taxation leads to what?
Increase in inflation
What 2 ways do tax increases affect financial services?
- Reduces money for investments and repayment
- Makes some products less attractive
The Revocation and Reform Bill of 2022 allowed the government to do what?
Amend EU law in the UK post Brexit
Most common EU law types are?
- Regulation
- Directives
What EU law is defined as?
- Have general application
- Binding in entirely in what and how it is to be achieved
- Directly applicable in all member states
Regulations
What EU law is defined as?
- Binding to each member states addressed as a result to be achived
- Each state has discretion as to how these are achieved
- Objective must be achieved with 2 years
Directives
Post BREXIT does the UK need to adopt EU legislation?
No they can decide if they want to
The commission set up to monitor financial regulation across the EU is called what?
European System of Financial Supervision (ESFS)
The ESFS has Supervisory authorities called?
European Supervisory Authorities (ESA)
ESA has power to do what?
Make decisions and rules change to regulatory bodies
Are the PRU & FCA part of ESFS post Brexit?
No (but must follow ESA rules over UK businesses providing services to clients in EU countries
- European Securities & Markets Agency (ESMA)
- European Banking Authority (EBA)
- European Insurance & Occupational Pensions Authority (EIOPA)
Are the ESA
What are the 4 tiers of regulatory oversight in the UK?
- Acts of Parliament
- Regulatory Bodies
- Financial Institutions Policies & Procedures
- Arbitration Schemes
Which regulartory tier is this?
- Sets out what can or can’t be done
- legalisation called “ statutory requirements”
Acts of Parliament
1st tier
Which regulartory tier is this?
- monitors rules and regulation about legislation
Regulatory Bodies
2nd tier
What are the main regulatory bodies in the UK?
- PRU (Predentual Regulation Authority
- FCA ( Financial Conduct Authority)
Which regulartory tier is this?
- Ensure they operate legally & competently
Financial Institutions Policies & Procedures
3rd tier
Which regulartory tier is this?
- Financial Ombudsman Scheme
- Refer customers complaints
Arbitration Schemes
4th tier
What is the name of the ECB’s organisation for supervision and monitoring of banks in the EU
Single Supervisory Mechanism (SSM)
What does the SSM do?
- Bank monitoring & supervision in EU
- Common approach to banking
- ECB has final decision on supervisory matters
