Cards (17)

    • What is monetary policy?
      Policies which adress interest rates and the supply of money in circulation, and which are managed by a central bank
    • What are interest rates?
      The cost of borrowing money or the return received for saving
    • How are interest rates used to decrease AD?
      If the rate of inflation is above its target level than the base interest rate will be decreased
    • How are interest rates used to increase AD?
      If the rate of inflation is below its target level than the base interest rate will be increased
    • What is quantitative easing?
      A form of monetary policy where a central bank buys government bonds in order to increase the money supply and stimulate the economy
    • When is quantitative easing used?
      In an economic crisis, when interest rates alone cannot stimulate AD
    • What is fiscal policy?
      Policies which adress government spending and the use of taxation, and which are managed by legislation
    • What is government expenditure?
      Spending by the government on public goods, services, and programs
    • What are direct taxes?
      Taxes on income
    • What are indirect taxes?
      Taxes on spending
    • How is fiscal policy used to decrease AD?
      The government would decrease expenditure and/or increase taxes
    • How is fiscal policy used to increase AD?
      The government would increase expenditure and/or decrease taxes
    • What is budget deficit?
      When the government spends more than it receives in taxation, leading to an increase in AD
    • What is budget surplus?
      When the government spends less than it receives in taxation, leading to a decrease in AD
    • What are the main jobs of the Monetary Policy Committee?
      To set the base interest rate, and to use monetary tools to meet the government's inflation target of 2%
    • What are the two main advantages of demand-side policies?
      They can control demand-pull inflation, and if the multiplier is large, they can increase economic growth
    • What are the two main disadvantages of demand-side policies?
      Stimulating AD leads to a larger budget deficit and contributes to national debt, and the multiplier might be low so that they have no effect