1.1 The Objectives Of Goverment Economic Policy Flashcards

1
Q

What are the eight macroeconomic objectives?

A
  • economic growth
  • price stability
  • minimising unemployment
  • stable balance of payments on current account
  • balancing the budget
  • greater income equality
  • environment
  • exchange rates
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2
Q

Macroeconomics definition

A

Refers to the economy as a whole

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3
Q

Macroeconomic objective definition

A

A goal a government would like to achieve for the macroeconomy

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4
Q

Economic policy definition

A

The economic tools and instruments available for the government to use to influence economic performance

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5
Q

Economic growth definition

A

The change in national income measured over a period of time

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6
Q

What is price stability?

A

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

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7
Q

What is minimising unemployment?

A

Aiming to have as near to full employment as possible

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8
Q

Balance of payments definition

A

The record of financial flows into and out of a country in a particular time period

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9
Q

What is balance of payments on the current account?

A

The government aims for an equilibrium of exports and imports

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10
Q

Balanced budget definition

A

Achieved when government spending equals government revenue

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11
Q

What is achieving equal distribution of income?

A

Government would like to ensure that the gap between the richest and poorest does not become excessively wide

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12
Q

Distribution of income definition

A

How evenly incomes are shared between individuals and households across the economy

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13
Q

Policy conflict definition

A

Attempt to achieve one economic objective moves us further away from another economic objective

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14
Q

Trade off between policy objectives definition

A

The extent to which one policy objective has to be sacrificed in order to achieve another objective

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15
Q

What are the 5 policy conflicts?

A
  • economic growth vs inflation
  • economic growth vs current account
  • economic growth vs budget deficit
  • economic growth vs the environment
  • unemployment vs inflation
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16
Q

Why is economic growth versus inflation and issue?

A

This can occur when a aggregate demand increases faster than aggregate supply

17
Q

Why is economic growth versus the current account and issue?

A
  • 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
18
Q

Why is economic growth versus the government budget deficit an issue?

A
  • 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
19
Q

Why is economic growth versus the environment and issue?

A

High levels of economic growth are likely to result in high levels of negative externalities such as pollution

20
Q

Why is unemployment versus inflation and issue?

A
  • 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
21
Q

How can unemployment versus inflation be tackled?

A

If supply-side policies are used to reduce structural unemployment, which will not increase average wages

22
Q

Phillips curve definition

A

The apparent relationship between the rate of inflation and the rate of unemployment

23
Q

What are the three main macroeconomic objectives?

A
  • economic growth
  • price stability
  • minimising unemployment