11 - Macroeconomic Objectives Flashcards
What is macroeconomics?
The study of long term trends and short term fluctuations in economic growth, unemployment and inflation
What are the main macroeconomic objectives?
Positive steady and sustainable economic growth
A low and stable level of unemployment
Price stability (low and positive inflation)
Long term stability on the balance of trade
What are the other macroeconomic objectives?
Balanced government budget (control of state borrowing so national debt doesn’t escalate)
Protect the environment
Greater income equality
How do you rank an economy?
Economic growth
Unemployment
Inflation
Balance of payments (trade)
What is economic growth and how do you measure it? What does it indicate?
It is an increase in real output over time
Measure by rate of change of real GDP per annum
Indicates economic well being or economic welfare
What is GDP?
Gross domestic product - total value of goods and services produced in a country in one year
What is unemployment, how is it measured and what does it indicate?
When people who are economically active and willing to work are out of work
Measured through labour force survey or claimant count (unemployment benefits)
Indicates spare capacity and under-utilised resources
What is the balance of payments and what does it indicate?
Inflow and outflow of goods, services, investments and transfer payments from an economy
Indicates a countries international competitiveness
What does a deficit on the balance of payments mean?
The value of imports is greater than the value of exports
Why do non-developed countries grow faster than developed countries?
Diminishing returns to capital and labour
Absent technological progress
Economic growth ceases
New technology needed
What is the economic/business cycle?
Regular pattern of ups and downs in the real value of gdp
Boom (line goes up) - Economic growth
Downturn (line starts going down but GDP growth is not negative)
Recession (line down past y axis) - negative economic growth
Recovery (line goes up)- after a recession goes back to positive economic growth
What is recession?
GDP falls, unemployment rises, inflation falls, output gap increase (negative), low business and consumer confidence
What is recovery?
GDP growth goes from negative to positive but is below trend
What is boom?
GDP growth is above trend, inflation rises, positive output gap, unemployment falls, high business and consumer confidence
What is slowdown?
GDP growth rate falls towards trend
