Macro Objectives and Policies

Cards (97)

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