11. NZ Macroeconomics Flashcards
What are the 3 different types of Macroeconomic Policies?
Fiscal, Monetary, Supply Side
What is Macroeconomics?
Studying how a national economy works. It consists of all the different markets for goods and services and anything else that is traded.
What could rising Total Demand or falling Total Supply lead to?
Inflation by pushing up prices in the market.
What could falling Total Demand lead to?
Unemployment, lower prices
What are the aims of a government with Macroeconomics?
Low and stable inflation High and stable employment Economic growth Stable balance of imports and exports Reduce poverty Reduce pollution
What would happen if there was no Economic growth?
Employment, income and living standards will fall
Government tax spending will fall
Revenue will fall
What is inflation?
A continuous rise in the average level of prices
How might rising inflation impact an economy?
It reduces the purchasing power of consumers
It causes hardship for people on low incomes
It increases business costs, especially if workers demand higher wages
It makes goods and services more expensive to buy
What may happen if unemployment rises?
National Output will fall
The government will have to support them with welfare payments
Worker’s skills may become obsolete
What is a stable balance of international trade?
A country does not exceed the amount spent on imports than the amount earned from exports
Export revenue must be equal to or greater than Import expenditure.
What may happen if a country has a deficit in its balance of payments?
It may run out of foreign currency to buy imports
The value of its currency may fall against the value of others.
What do Aggregate demand and Aggregate supply determine in an economy?
Equilibrium of prices
The total level of output
The total level of employment
What are the two side policies?
Demand and Supply-side policies.
What is the purpose of Demand and Supply-side policies?
Influence Aggregate Demand and Aggregate Supply
What is the purpose of Demand side policies?
Boost aggregate demand in an economy
How do demand side policies boost aggregate demand?
Changing public expenditure
Changing the level of taxation which impacts disposable income
Changing the rate of interest/OCR to make borrowing or saving more attractive to consumers and businesses
What is Fiscal Policy?
Varying the overall level of public expenditure and taxation in an economy to impact aggregate demand
How would Fiscal Policies impact aggregate demand?
Increasing public expenditure to create jobs and demand for goods and services
Changing the tax rate to affect disposable income and demand
What are the characteristics of an Expansionary Fiscal Policy?
Increasing Government expenditure
Cutting taxes
Under what circumstances would a government implement Expansionary fiscal policy?
When the economy is in deficit
When spending outweighs revenue
What is Contractionary Fiscal Policy?
Aiming to reduce prices in an economy
This is done by reducing public expenditure
Or raising taxes to reduce demand
Under what circumstances would a government implement Contractionary fiscal policy?
If the country is in deficit and the Government wants to reduce the budget deficit
What are the problems with Fiscal Policy?
Difficult to know exactly when and by how much to expand public spending or cut taxes by.
For the government to increase spending or cut taxes it may need to borrow money.
Increasing taxes on income and profits can reduce the incentive for people to work.
People may expect inflation and start a push for higher wages
What is the purpose of Supply Side policies?
Influence Aggregate supply
How do Government Supply-side policies influence aggregate supply?
Giving tax incentives to businesses Providing financial and capital subsidies Providing training for workers Removing trade barriers and tariffs Preventing Monopolies from forming
What is Privatisation?
wWen a government will sell state owned assets (SOE) to the private sector
What is Monetary Policy?
The manipulation of interest rates and the money supply within an economy
What are the aims of Monetary policy?
Boost Economic activity by increasing the money supply
How does the government boost the money supply?
Changes the Interest rates
What effect does lowering interest rates have on the economy?
Encourages spending as it is cheaper to borrow
Discourages saving
Can lift the economy out of a slump
What effect does increasing interest rates have on the economy?
Discourages firms and individuals from spending
What is Contractionary Monetary Policy?
Increasing interest rates
What is Expansionary Monetary Policy?
Decreasing Interest rates
What is Exchange rate policy?
Changing the interest rates to influence exchange rates of currency
What are all the different types of policy? (7)
Demand side policies Supply side policies Expansionary Fiscal policy Contractionary Fiscal policy Contractionary Monetary policy Expansionary Monetary policy Exchange rate policy
