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Economic Policies


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Fiscal Policy
A policy that uses taxation and government spending to achieve government objectives
Balanced budget
Government spending is equal to tax revenue
Budget deficit
Government spending is greater than tax revenue
Budget surplus
Tax revenue is greater than government spending
Multiplier effect
A process by which an original change in incomes in the economy leads to a total change in incomes which is a multiple of the original change
Reflating the economy
Increasing demand by using a budget deficit
Deflating the economy
Reducing demand by using a budget surplus
Money
Anything that is generally acceptable as a medium of exchange
Banks and Building Societies
Financial institutions that accept deposits and make loans
Interest rate
The reward for saving and the cost of borrowing
Monetary Policy
A policy aimed at affecting the total supply of money in the economy - normally using interest rates
Interest rate policy
The use of interest rates to try to achieve the government's economic objectives
Bank rate
The interest rate set by the Bank of England which affects all interest rates in the economy
Inflation target
A specific target for the inflation rate - in the UK is it 2% as measured by the CPI
Monetary Policy Committee
The group at the Bank of England that decides the interest rate
Time lags
The length of time it takes a policy to have an impact
Exchange rate
The price of one currency against another - this can be influence by the interest rate
Supply-side Policies
Policies that increase the ability of the economy to supply more goods
Aggregate demand
The total demand in the economy
Aggregate supply
The total supply in the economy
Policy conflicts
Where trying to achieve one macroeconomic objective hampers achieving another