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Macro (2,4)
Theme 2
Macro Objectives and Policies
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Cards (97)
What is the long run trend of economic growth in the UK?
About 2.5%
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Why do governments aim for sustainable economic growth?
To ensure growth benefits the long run
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What do governments in emerging markets prioritize before economic growth?
Economic development
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How does increasing economic development affect living standards?
It improves living standards and life expectancy
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What unemployment rate do governments aim for to account for frictional unemployment?
Around 3%
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What is the goal of having low unemployment?
To achieve near full employment
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What is the UK government's inflation target?
2%
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How is inflation measured in the UK?
With the Consumer Price Index (CPI)
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What happens if the inflation rate falls 1% outside the target?
The Governor must write a letter to the
Chancellor
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Why is a balance of payments equilibrium important?
It allows sustainable financing of the
current account
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What does a balanced government budget ensure?
Control of
state borrowing
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Why is protecting the environment important for governments?
To ensure
long run
environmental
stability
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What does greater income equality aim to achieve?
Equitable distribution
of income and wealth
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What are the main objectives of government economic policies?
Sustainable economic growth
Low unemployment
Low and stable inflation
Balance of payments equilibrium
Balanced government budget
Environmental protection
Greater income equality
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What is likely to happen in a growing economy regarding inflation?
It experiences
inflationary pressures
on prices
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What causes inflationary pressures when there is a positive output gap?
AD
increases faster than
AS
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What occurs during a negative output gap?
Actual output is less than
potential output
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What does a negative output gap indicate about resource utilization?
It indicates
unemployment
of resources
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What does a positive output gap signify?
Actual output exceeds
potential output
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How can a positive output gap occur in an economy?
Resources
are used beyond normal
capacity
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Which countries are associated with high inflation due to positive output gaps?
China
and
India
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What happens to consumer spending during periods of economic growth?
Consumers have
high levels
of spending
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What is the effect of high marginal propensity to import in the UK during economic growth?
It
leads
to
more
spending
on
imports
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What is the consequence of increased spending on imports during economic growth?
It worsens the
current account deficit
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What does export-led growth allow a country to achieve?
A
current account surplus
with high growth
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What is required to reduce a government budget deficit?
Less
expenditure
and more
tax revenue
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What is the impact of reducing a budget deficit on aggregate demand (AD)?
It
leads
to
a
fall
in
AD
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What is a likely consequence of high rates of economic growth on the environment?
High levels of
negative externalities
occur
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What negative externalities are associated with high economic growth?
Pollution and usage of
non-renewable
resources
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What does the Phillips curve illustrate?
The trade-off between
unemployment
and
inflation
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What happens to unemployment as economic growth increases?
Unemployment falls due to
job creation
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How does increased economic growth affect wages and consumer spending?
Wages
increase
, leading to
more
spending
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How can supply-side policies affect structural unemployment?
They can reduce structural unemployment without
raising wages
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What are demand-side policies designed to do?
Increase
consumer demand
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What is the main goal of demand-side policies?
To increase
total production
in the economy
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What is monetary policy used for?
To control the
money flow
of the economy
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Who conducts monetary policy in the UK?
The
Bank of England
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What are the two main types of policy discussed?
Monetary
and
fiscal
policy
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What does fiscal policy use to influence aggregate demand (AD)?
Government spending
and
taxation
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What does the Monetary Policy Committee (MPC) alter to control money supply?
Interest rates
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