eco test

• What is a mixed economy?

• A mixed economy is an economic system that combines elements of both free market capitalism and government intervention.

• Define the term government intervention.

• Government intervention refers to the involvement of the government in economic affairs through policies, regulations, and other measures.

• How are levels of government categorised?

• Government roles are categorised into local, national (macroeconomic), and international levels of intervention.

state the meaning of local government.

Local government refers to the administrative bodies responsible for delivering public services within a specific geographic area, such as a town or region.

• Define the term fiscal policy.

• Define the term fiscal policy.

  Fiscal policy refers to the government's policies related to taxation, spending, and borrowing to influence the economy.

• What does monetary policy mean?

the actions taken by a central bank to control the supply of money and interest rates in an economy.

• State the meaning of supply-side policy.

government policies aimed at increasing the productive capacity and efficiency of an economy.

• How do governments intervene internationally?

• through measures such as exchange rate interventions and protectionism to influence international trade and competitiveness.

• Define exchange rate intervention.

• the process of a central bank buying or selling its own currency in the foreign exchange market to influence the exchange rate.

• What is protectionism?

government policies that restrict international trade to protect domestic industries from foreign competition.

• What is economic growth?

• an increase in the productive capacity of an economy over time.

• What is a sustainable growth rate?

the rate at which an economy can expand its productive capacity without encountering significant obstacles, typically around 2-3% per year.

• Define the term inflation.

a sustained increase in the general price level of goods and services in an economy over time.

• What does the term unemployment mean?

the condition of being without a job but actively seeking work.

• State the meaning of full employment.

• a situation where all available labour resources are being used in the most efficient way possible.

• How is the current account in the balance of payments calculated?

the difference between a country's exports and imports of goods and services.

• What is a current account surplus?

• when a country's exports exceed its imports.

• Define current account deficit.

when a country's imports exceed its exports.

• State the meaning of income redistribution.

• the transfer of income from the wealthy to the poor, typically through taxation and welfare programmes.

• aim of income redistribution?

• The aim of income redistribution is to reduce income inequality and poverty in an economy.

• What is the trade-off between economic growth and inflation.

• Rapid economic growth can lead to demand-pull inflation.

• What is the trade-off between economic growth and environmental sustainability?

• Higher economic growth tends to deplete natural resources at a faster rate, increasing pollution and negative externalities, which conflict with environmental sustainability goals.

• How is income inequality affected by economic growth?

• During periods of strong economic growth, incomes and profits for business owners and investors tend to rise faster than wages for workers, worsening income inequality.

• What is the impact of economic growth on the current account balance?

Robust economic growth that raises incomes can increase household spending on imports, worsening a country's current account balance.

• What trade-off does the Phillips curve show?

• the trade-off between low unemployment and low inflation, as lower unemployment tends to put upward pressure on inflation.

• What is demand-pull inflation?

• when total demand in an economy outpaces the total supply of goods and services, bidding up prices.

• Define the term cost-push inflation.

• caused by an increase in the costs of production (higher wages or raw material prices), leading to higher consumer prices.

• How can supply-side policies help with inflation?

• Supply-side policies that improve productivity, incentivise business investment, or reduce regulatory burdens can help ease cost-push inflation.

• What is the government budget?

a document that outlines the government's planned expenditures and expected revenues for a fiscal year.

• What is a balanced budget?

when government revenue equals government expenditure.

• What is a budget deficit?

when government expenditure exceeds government revenue.

• Define the term budget surplus.

• when government revenue exceeds government expenditure.

• How is a budget deficit financed?

• through public sector borrowing, which gets added to the public debt.

• What are current expenditures?

• daily payments required to run the government and public sector, such as salaries and payments for goods and services.

What are capital expenditures?

investments in infrastructure and capital equipment, such as high-speed rail projects or new hospitals

• Define the term transfer payments.

• payments made by the government for which no goods or services are exchanged, e.g. unemployment benefits or subsidies.

• What are the types of government spending?

• • Current expenditures

  • Capital expenditures

  • Transfer payments

• What is the main source of government revenue?

• taxation.

• Define the term direct taxes.

• taxes imposed on income and profits, paid directly to the government by individuals or firms.

• Define the term indirect taxes.

• taxes imposed on spending, such as Value Added Tax (VAT) or excise duties on fuel.

• What is a progressive tax system?

• one where a larger percentage of income is paid in tax as income rises.

• Define the term regressive tax system.

• A regressive tax system is one where a smaller percentage of income is paid in tax as income rises.

• What is a proportional tax system?

• A proportional tax system is one where the same percentage of income is paid in tax regardless of income level.

• What are marginal tax rates?

• the tax rates applied to additional income as income rises in a progressive

• What are principles of a good tax system?

• • Simplicity

  • Fairness

  • Convenience

  • Efficiency

  • Fit for purpose

  • Flexibility

• How can tax rate changes affect economic growth?

• Increasing tax rates can reduce total (aggregate) demand as firms and households have less disposable income, slowing economic growth.

• Define the term expansionary fiscal policy.

• Expansionary fiscal policy aims to increase economic growth through measures like reducing taxes or increasing government spending.

• What is contractionary fiscal policy?

• Contractionary fiscal policy aims to slow down economic growth or reduce inflation through measures like increasing taxes or decreasing government spending.

• How often is the government's fiscal policy announced?

• usually announced annually by the government when it releases its government budget.

• What is the formula for calculating total demand?

• Total demand = household consumption (C) + firm investment (I) + government spending (G) + exports (X) - imports (M).

• What are the usual effects of contractionary fiscal policy?

• • Slow economic growth

  • Ease inflation

  • Increase unemployment

• What are the usual effects of expansionary fiscal policy?

• Increase economic growth

• Increase inflation

• Increase employment

• What is a strength of fiscal policy?

• its effects are seen sooner compared to monetary policy due to a shorter time lag.

• What is the main weakness of fiscal policy?

• increased government spending can create budget deficits, leading to debt repayment and future austerity measures.

• how can fiscal policy redistribute income?

• Fiscal policy can redistribute income through a progressive taxation system and welfare programmes that transfer resources from the wealthy to the poor.