Macro

• What are the characteristics of expansionary monetary policy?

  • Cut interest rates
  • Increase money supply via QE
  • Stimulate AD growth
  • Prevent deflation
• What are the characteristics of contractionary monetary policy?

  • Raise interest rates
  • Decrease money supply via QT
  • Slow AD growth
  • Control inflation
• What effect does increased demand for government bonds have?

  It increases the market price of bonds
• What is the relationship between bond prices and yields?

  There is an inverse relationship between them
• How can lower bond yields affect the currency?

  It may cause the currency to depreciate
• What is a potential outcome of selling bonds for cash?

  Investors may buy higher yield assets
• What are some strengths and weaknesses of demand-side policies?

  Strengths:

  • Can stimulate economic growth
  • Quick fiscal policy effects

  
  

  Weaknesses:

  • Conflicts between monetary and fiscal policy
  • Time lags in policy effects
  • Increased budget deficit risks
• What are the main aims of supply-side policies (SSPs)?

  • Improve work and investment incentives
  • Increase productivity and mobility
  • Promote innovation and contestability
  • Support sustainable growth and living standards
• What does Purchasing Power Parity (PPP) assess?

  Relative living standards between countries
• What is the effect of tax cuts in market-based SSPs?

  They provide more disposable income and profits
• Why is market exchange rate insufficient for comparing living standards?

  It doesn't reflect cost of living differences
• How does deregulation benefit firms?

  It lowers compliance costs and encourages expansion
• How is PPP calculated?

  By comparing prices of a basket of goods
• What does PPP measure regarding currency?

  Total goods a currency can buy abroad
• What is the role of intellectual property protection in SSPs?

  Encourages innovation and entrepreneurship
• What does GDP stand for?

  Gross Domestic Product
• What are the problems associated with market-based SSPs?

  • Income inequality may increase
  • Underinvestment in public goods
  • Market failures can occur
  • Financial instability risks
• What is Gross National Product (GNP)?

  GDP plus net property income from abroad
• What is the function of the Bank of England's Monetary Policy Committee (MPC)?

  To set the base rate and decide on QE
• How is Gross National Income (GNI) related to GNP?

  GNI is similar to GNP
• What is the UK CPI inflation target?

  2% +/- 1% point
• What is the formula for GNI?

  GNI = GDP + net income from abroad
• When can GNI be higher than GDP?

  When there are inflows from abroad
• How do higher interest rates affect consumer spending?

  They raise borrowing costs and slow spending
• What is economic growth?

  Increase in potential output of an economy
• What is the difference between nominal and real interest rates?

  Nominal is the actual rate paid; real is adjusted
• How is economic growth measured?

  By the % change in real GDP
• What does nominal GDP measure?

  Monetary value of goods at current prices
• What is real GDP?

  Nominal GDP adjusted for inflation
• What is real GDP per capita used for?

  Proxy measure for standard of living
• What are the time lags associated with SSPs?

  • Short-term costs before long-term benefits
  • Delayed effects of interventionist policies
  • Opportunity costs during implementation
• What is the difference between value and volume in economic terms?

  Value shows worth; volume shows quantity
• How do SSPs affect income distribution?

  • Interventionist SSPs often reduce inequality
  • Market-based SSPs may increase inequality
  • Winners and losers depend on perspectives
• What are the limitations of using GDP to compare living standards?

  • Does not account for income distribution
  • Ignores unpaid work contributions
  • Overlooks environmental impacts
  • Fails to consider negative externalities
  • Misses shadow market activities
  • Does not reflect job quality changes
  • Lacks accuracy in data collection
• What does subjective happiness refer to?

  Self-reported levels of happiness
• How do higher interest rates help reduce inflation?

  They increase savings returns, encouraging saving
• What factors affect subjective happiness?

  Personality, income, health, leisure time
• What is the role of central banks?

  To operate monetary policy and maintain stability
• What is the Easterlin Paradox?

  Happiness rises with income up to a point
• How many members are in the Bank of England's MPC?

  Nine members