monetary policy application

Question 1

key tax increases UK

Answer 1

corporation tax is expected to increase to 25% for companies with profits above £250,000

National Insurance:
The rate of social security contributions paid by employers will increase to 15%

The capital gains tax rate applicable to carried interest for the fund management industry will increase to 32% from April 2025

Question 2

cuts in welfare UK

Answer 2

• £5bn cut to spending on health-related benefits
• £1bn investment in back-to-work programmes
• the health element of UC will be cut by £47 to £50 per week for new claimants, and frozen for existing recipients — with young people under 22 excluded entirely, subject to consultation.

Question 3

how was Greece’s recession in 2010 fixed

Answer 3

Greece couldn’t use its own monetary policy, because it adopted the euro in 2001 — meaning:
- Greece couldn’t print money (no control over the money supply)
- It couldn’t lower its own interest rates to stimulate borrowing/investment
- All monetary policy was controlled by the European Central Bank (ECB) in Frankfurt.

Instead, help came in the form of:
1. ECB & IMF Bailouts
💰 Greece received three bailout packages from the EU, ECB, and IMF worth over €300 billion.
- These bailouts were conditional on Greece implementing strict austerity measures.

2. Quantitative Easing (QE) — Later
   The ECB launched a QE programme in 2015, which helped lower borrowing costs for Eurozone countries, including Greece.
   - But it was too late to prevent the worst of the recession.

Question 4

what happened to Greece 2010

Answer 4

Greece experienced a sovereign debt crisis starting around 2009, hitting hard in 2010. It was caused by a mix of:

📉 High government debt (over 140% of GDP by 2010)

📊 Budget deficits (around 15% of GDP)

😬 Loss of investor confidence in Greek bonds

📉 Falling economic output (GDP contracted by over 4% in 2010)

📈 Unemployment skyrocketed (25%+ by 2012)

Question 5

how did Greece’s recession show a disadvantage of being a monetary union

Answer 5

➤ No control over interest rates
Greece couldn’t cut interest rates to stimulate demand like the UK or US could.

➤ No currency devaluation
If Greece still had the drachma, it could’ve devalued its currency to:

Make exports cheaper

Boost tourism

Help reduce its trade deficit

But with the euro, that wasn’t an option.

➤ One-size-fits-all policy
The ECB sets interest rates for all 20+ countries — but Greece needed lower rates while Germany needed higher ones.

This created a policy mismatch.

➤ Slow decision-making
Greece had to negotiate with multiple EU bodies, leading to delays in aid, worsening the recession.