1 Economic policy is the grouping of actions taken by
the Chancellor of the Exchequer to try to achieve the
government's economic objectives.
2.1 Stable exchange rate: measures volume/amount of foreign currency that
can be bought with one unit of domestic currency. Stable exchange rate ->
firms can forecast profit/loss they make from exporting/importing. -> more
trade -> boosts UK economic activity.
2.2 Favourable current account balance: the difference
between export income and import expenditure. Gov avoids
current account deficit. -> fall in collective net worth.
2.3 Low unemployment: If reduced, output should
increase. Spending levels should increase
(wages not benefits) -> help firms grow and
2.4 Low inflation: percentage change in avg. price
level. Price stability = easier to compete home +
abroad, encourages investment -> stronger
2.5 Economic growth: total value of all goods/services
increase in a year. Standard of living increase. Avg
income rises -> consumers more money -> larger
markets -> add opportunities.
3 Coping with
3.1 (2008) Risky lending and riskier borrowing. In fear of bank
collapse, people withdrew cash -> governments had the ability
and the will to step in to (try to) solve the free market crisis.
4 Government economic
4.1 Fiscal policy
4.1.1 Government's budget. (Tax
4.1.2 How does gov expenditure
22.214.171.124 Increase in gov spending means more money in economy -> markets grow.
126.96.36.199 Around 40% of UK economy relies on government spending;
construction (roads, schools), publishers, computer suppliers.
188.8.131.52 Reduced spending on NHS: -> cut turnover for construction ->
multiplier effects -> drug manufacturers, medical equip.
4.1.3 How does taxation
184.108.40.206 Largest component of gov income from
income tax. If income tax increases ->
demand falls -> consumer spending falls.
5.1 Increase economy's productive
capacity. An attempt to make it
easier for UK firms to supply
customers with goods/services.
5.2 Types of
5.2.1 Privatisation: selling state-owned to
private-sector. -> more efficient if
5.2.2 Deregulation: involves removing legal barriers to
entering an industry. -> makes markets more
competitive. -> increase efficiency.
5.2.3 Increase the incentive to work: benefits/ social security
could be reduced. Income tax rates could be cut.
Personal tax allowance could be increased -> help firms
who need extra labour -> wage rates may fall.
5.2.4 Flexible labour market legislation: favours employer rather than employee. More
flexible by.. Enable employers to dismiss workers with few legal formalities. (may
encourage employers to take on new staff when they wish to grow because the
same staff can be released quickly and at little cost in a downturn.
220.127.116.11 In addition, reduce
non-wage labour costs for
5.2.5 Immigration: influx of labour will
increase labour supply, lifting
economy's productive capacity.
Help ease skill shortages.
5.2.6 Transport and infrastructure: million of £'s are lost due to congested
roads and slow and antiquated railways. If improved costs of
operating will fall -> increase profitability and desirability of investing.
5.2.7 Education and training: increase
effectiveness of education -> increase in
productivity. -> lower costs.