What are the eight macroeconomic objectives?
- economic growth
- price stability
- minimising unemployment
- stable balance of payments on current account
- balancing the budget
- greater income equality
- environment
- exchange rates
Macroeconomics definition
Refers to the economy as a whole
Macroeconomic objective definition
A goal a government would like to achieve for the macroeconomy
Economic policy definition
The economic tools and instruments available for the government to use to influence economic performance
Economic growth definition
The change in national income measured over a period of time
What is price stability?
It is concerned with how fast the average level of prices of a range of goods and services rises over a period of one year
What is minimising unemployment?
Aiming to have as near to full employment as possible
Balance of payments definition
The record of financial flows into and out of a country in a particular time period
What is balance of payments on the current account?
The government aims for an equilibrium of exports and imports
Balanced budget definition
Achieved when government spending equals government revenue
What is achieving equal distribution of income?
Government would like to ensure that the gap between the richest and poorest does not become excessively wide
Distribution of income definition
How evenly incomes are shared between individuals and households across the economy
Policy conflict definition
Attempt to achieve one economic objective moves us further away from another economic objective
Trade off between policy objectives definition
The extent to which one policy objective has to be sacrificed in order to achieve another objective
What are the 5 policy conflicts?
- economic growth vs inflation
- economic growth vs current account
- economic growth vs budget deficit
- economic growth vs the environment
- unemployment vs inflation
Why is economic growth versus inflation and issue?
This can occur when a aggregate demand increases faster than aggregate supply
Why is economic growth versus the current account and issue?
- During periods of economic growth consumers have high levels of spending
- In the UK consumers have a high marginal prosperity to import so there is likely to be more spending on imports
- This leads to worsening of the current account deficit
Why is economic growth versus the government budget deficit an issue?
- Reducing a budget deficit requires less expenditure and more taxation
- This would lead to a fall in aggregate demand, as a result there will be less economic growth
Why is economic growth versus the environment and issue?
High levels of economic growth are likely to result in high levels of negative externalities such as pollution
Why is unemployment versus inflation and issue?
- As economic growth increases, unemployment falls due to more jobs being created
- However this causes wages to increase, which can lead to more consumer spending and an increase in average price level
How can unemployment versus inflation be tackled?
If supply-side policies are used to reduce structural unemployment, which will not increase average wages
Phillips curve definition
The apparent relationship between the rate of inflation and the rate of unemployment
What are the three main macroeconomic objectives?
- economic growth
- price stability
- minimising unemployment