1.1 The Objectives Of Goverment Economic Policy

Question 1

What are the eight macroeconomic objectives?

Answer 1

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

Question 2

Macroeconomics definition

Answer 2

Refers to the economy as a whole

Question 3

Macroeconomic objective definition

Answer 3

A goal a government would like to achieve for the macroeconomy

Question 4

Economic policy definition

Answer 4

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

Question 5

Economic growth definition

Answer 5

The change in national income measured over a period of time

Question 6

What is price stability?

Answer 6

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

Question 7

What is minimising unemployment?

Answer 7

Aiming to have as near to full employment as possible

Question 8

Balance of payments definition

Answer 8

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

Question 9

What is balance of payments on the current account?

Answer 9

The government aims for an equilibrium of exports and imports

Question 10

Balanced budget definition

Answer 10

Achieved when government spending equals government revenue

Question 11

What is achieving equal distribution of income?

Answer 11

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

Question 12

Distribution of income definition

Answer 12

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

Question 13

Policy conflict definition

Answer 13

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

Question 14

Trade off between policy objectives definition

Answer 14

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

Question 15

What are the 5 policy conflicts?

Answer 15

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

Question 16

Why is economic growth versus inflation and issue?

Answer 16

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

Question 17

Why is economic growth versus the current account and issue?

Answer 17

• 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

Question 18

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

Answer 18

• 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

Question 19

Why is economic growth versus the environment and issue?

Answer 19

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

Question 20

Why is unemployment versus inflation and issue?

Answer 20

• 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

Question 21

How can unemployment versus inflation be tackled?

Answer 21

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

Question 22

Phillips curve definition

Answer 22

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

Question 23

What are the three main macroeconomic objectives?

Answer 23

• economic growth
• price stability
• minimising unemployment