Definition
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Answer
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Refers to actions taken by the government (or the central bank acting on its behalf) to manipulate interest rates, the supply of money and credit, and the exchange rate to achieve its macroeconomic objectives.
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Monetary Policy
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Responsible for managing the monetary system in an economy.
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Central Bank
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The rate of interest at which the Bank of England is willing to lend short term to other financial institutions such as commercial banks.
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Bank Rate
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The tools available to a central bank to influence money market and credit conditions in the economy, such as changing interest rates.
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Monetary Policy Instruments
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A general term for borrowing. It is money that a bank or other organisations allows a person or organisation to use and to reoay at a later date.
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Credit
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Measures the proportion of a business's assets that are held in a form that can be easily converted into cash.
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Liquidity
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The rate of interest adjusted for inflation to show the true cost of borrowing money.
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Real Interest Rate
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A group of nine experts in monetary issues who meet monthly to make a decision on the UK's bank rate.
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Monetary Policy Committee
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Provide a wide range of financial services to individuals, firms and other organisations with the intention of making a profit.
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Commercial Banks
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Equal to a household's disposable income minus expenditure on essential items including housing costs and food.
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Discretionary Income
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Refers to funds that flow between financial markets as investors attempt to earn the highest short-term interest rates possible.
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Hot Money
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The difference between government spending and revenue over the financial year.
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Budget Balance
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Refers to the government's manipulation of the expenditure, taxation and the budget balance to manage the economy.
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Fiscal Policy
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The UK government's economic and finance ministry responsible for public spending and for setting the direction of the UK's economic policy.
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The Treasury
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Describes government policies to reduce expenditure and increase revenues from taxation during periods of budget defecits.
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Austerity
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A payment that has to be made to the government or other authority by households, firms or other organisations.
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Taxation
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Occurs when inflation results in taxpayers receiving higher incomes and moving into higher income tax bands - hence paying a higher percentage of income as tax.
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Fiscal Drag
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The total of all past government borrowing that has never been repaid.
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National Debt
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The elements of fiscal policy that occur independently as the economy moves through its economic cycle.
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Automatic Stabilisers
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The deliberate manipulation of the budget to achieve macroeconomic aims.
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Discretionary Fiscal Policy
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The use of macroeconomic policies to manipulate an economy's level of aggregate demand.
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Demand Management
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Refers to the basic facilities available to a society that support economic activity, such as transport and communication links as well as supplies of power and water.
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Infrastructure
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Intended to increase aggregate supply by improving the effectiveness of markets.
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Supply-side Policies
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Actions taken, primarily by firms, to increase the efficiency of their operations and thereby raise output.
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Supply-side Improvements
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Occurs when workers cannot move freely to take employment in a new location.
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Geographical Immobility
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Exists when workers cannot transfer easily to employment in a different type of job.
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Occupational Immobility
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An organisation formed with the objective of enhacing and protecting the working conditions and economic position of its members.
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Trade Unions
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Actions taken by trade unions to limit the freedom of businesses to take decisions regarding the use of labour in production.
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Restrictive Practices
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Refers to government intervention that seeks to support or develop some industries to enhance economic growth.
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Industrial Policy
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The transfer of state-owned organisations to the private sector, where they are owned by individuals and private firms.
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Privatisation
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The reduction of the extent of state or government control over a business activity.
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Deregulation
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